EUR/USD Weekly Fundamental Analysis October 1-5, 2012 Forecast

Introduction: Out of the major currency pairs the most popular and easy to trade currency pair is the EUR/USD. It has become so popular with traders these days that even when there is no visible trade to be had it is yet traded as a matter of habit. This is of course something that should be avoided and any investor who trades this currency pair wisely can do so successfully with sizable profits at the end of the day.

The first thing with trading currencies is to realize that the EUR/USD is made up of two separate currencies although considered to be one unit when taken as a pair. The weaknesses and strengths of each currency have to be taken into consideration when trading the unit as it influences the final outcome. Another factor that is often overlooked by traders or investors is that the weakening of one currency along with the strengthening of the other currency in the pair results in the generation of pips. It is according to this that entry and exit from the Forex market has to be done in order to maintain profitability.

• The interest rate differential between the European Bank(ECB) and the Federal Reserve(FED)
• Dollar strength drives EUR/USD lower
• FED intervention to weaken the dollar the sends EUR/USD higher

Weekly Analysis and Recommendation:

The EUR/USD is trading at 1.2858 after hitting a high of 1.2980 at the beginning of the week. Economic data released this week showed a deteriorating outlook in the US economic recovery. 2Q GDP growth was revised lower to a surprising 1.3% from the prior 1.7% estimate, durable goods orders saw the largest decline since January 2009, the September Chicago PMI fell below the pivotal 50 level for the first time since 2009, and personal income grew a mere 0.1% in August. U.S. treasury yields have fallen with the 10-year yield back below the 100-day SMA.

Thanks to a sharp rally through Friday, the US dollar managed to close out this past week in the green. However, we are once again lacking the conviction of a definable trend for the greenback – whether bullish or bearish. This indecision will not likely last for very long, however, as we head into the fourth quarter. Rather than jumping from headline-to-headline or release-to-release, the markets are facing matters that will redefine investor sentiment and determine whether sidelined long-term investors return or the speculative build up of the past few years is reversed. What we need is the catalyst – both fundamental and technical – that sets us on our course.

Economic data next week includes key labor reports such as the ADP employment change and the September nonfarm payrolls (NFP) and unemployment rate. As monetary policy takes time to work its way into the economy, it is unlikely that we will see the benefits of the recent round of easing in next week’s releases. Furthermore, with heightened uncertainty over the looming fiscal cliff, employers may be reluctant to increase hiring which has been a factor in subdued job growth. Weaker labor data could put renewed pressure on the dollar as the Fed acts to promote sustained improvement in labor market conditions.

While Euro data was negative for the week, sentiment toward the euro was negative, as Spain just simply refused to ask for a bailout and Greece continued to play games, as riots and protests broke out in both countries.

Also next week, more global manufacturing data will be released with China and Europe announcing Purchasing Managers Index data, while the U.S. ISM manufacturing index also is slated for release.

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports and we provide daily updates and outlooks.

Major Economic Events for the week of September 24-28, 2012 actual v. forecast for Euro, GPB, the Franc, and USD

Economic Highlights of the coming week that affect the Euro, GBP, CHF and the USD

Government Bond Auction

Date Time Country 

Oct 01 10:00 Norway 

Oct 02 09:15 Austria 

Oct 02 09:30 Belgium 

Oct 02 09:30 UK 

Oct 02 14:30 UK 

Oct 03 09:10 Sweden 

Oct 03 10:00 Norway 

Oct 04 08:30 Spain 

Oct 04 08:50 France 

Oct 04 15:00 US 

Oct 05 15:30 Italy