EUR/USD Weekly Fundamental Analysis September 17-21, 2012, Forecast

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Weekly Analysis and Recommendation:

The EUR/USD finished a spectacular week coming close to the 1.32 price. The pair needed the week at 1.3129 after topping out at 1.3168 after news from the US FOMC of the launch of QE3.

On Wednesday, September 12th, the German constitutional court ruled against a challenge to the legality of the European Stability Mechanism (ESM), paving the way for the full ratification of the euro area’s permanent bailout fund and fiscal pact. The provisional ruling came with two conditions: Germany’s liability under the ESM cannot be enlarged beyond the current maximum level of €190 billion (27% of the fund’s total capital) without prior approval of the Bundestag, and both the lower and upper houses of parliament must be kept informed of the fund’s activities. The decision, though broadly anticipated, was welcome news for European financial markets, with peripheral bond yields initially tightening, the euro strengthening and equities rallying. Subsequently however, market behavior was dictated by the announcement of a third round of quantitative easing by the US Federal Reserve, as well as Spanish and Greek political risks heading into a weekend summit of euro area finance ministers and central bank officials.

Following the introduction of QE3 via non-sterilized purchases of mortgage backed securities combined with a continuation of operation ‘twist’ and pushing off expected rate hikes until  mid-2015 at the earliest, there are no fewer than 10 Fed speakers on the calendar over the week ahead as the black-out period on Fed communications lifts.  Clearly the Fed thinks it has some explaining to do.  One outstanding issue is our view that once operation ’twist’ expires in December, the Fed may have to further expand quantitative easing through non-sterilized purchases of Treasury securities.  Right now, the Fed is selling short-dated securities to purchase Treasuries further up the curve and this is reinforcing the benefits of MBS-focused QE.  When the twist expires, however, the Fed may be challenged to control base yields if it is only left targeting the spread product — thus potentially putting policy at odds with itself in controlling the all-in yields that influence mortgage rates.

Date

Last

Open

High

Low

Change %

Sep 14, 2012

1.3129

1.2993

1.3168

1.2985

1.05%

Sep 13, 2012

1.2993

1.2902

1.3001

1.2861

0.71%

Sep 12, 2012

1.2902

1.2852

1.2936

1.2816

0.40%

Sep 11, 2012

1.2851

1.2761

1.2871

1.2759

0.71%

Sep 10, 2012

1.2761

1.2796

1.2804

1.2755

-0.27%

European markets face a combination of first-tier data risk and event risk stemming from key meetings to start and end the week ahead.  The meeting of Euro-area finance ministers and central bankers extends into this weekend, and with it goes two forms of headline risk.  One concerns the possibility that the next installment of aid payments to Greece will be delayed particularly amid difficulty in achieving agreement on the required cuts within Greece’s coalition, and given speculation that a further debt restructuring may be required.  If true, then Europe’s recent progress may encounter renewed market risk.  Another form of headline risk relates to possible heightened pressure upon Spain to formally request aid from the so-called troika that consists of the ECB, EC and IMF.  Spanish reluctance to accept intrusion into decisions affecting government spending and pensions is holding up such an aid request, and this reticence could well scuttle the benefits of the ECB’s conditional bond buying program.  Next on the meeting schedule will be the latest EU-China Business Summit on Thursday in Brussels.  The Summit will take until its conclusion to get to the key speakers as each of China’s Prime Minister Wen Jiabao, European Commission President Jose Barroso, and European Council President Herman Van Rompuy are scheduled to deliver the final addresses of the day.  This is the last formal meeting between Premier Wen and EU leaders before Wen’s successor takes over in the leadership transition, so the risk is that at this Summit China may not have the leadership continuity necessary to materially advance relations.  This Summit could nevertheless be a lively one on multiple counts.  First, China’s ambassador to the EU, Wu Hailong, remarked following the German court ruling on the ESM that China is “reaching out to the ESM regarding potential cooperation,” and “We continue to make investments in the European debt market.”  This may therefore be a pre-cursor to potentially supportive comments by Premier Wen at the Summit.

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 10-14, 2012 actual v. forecast for Euro, GPB, the Franc, and USD

Date

Time

Currency

Event

Actual

Forecast

Previous

Sep. 11

00:01

GBP

RICS House Price Balance 

-19%

-22% 

-23% 

 

06:30

EUR

French Non-Farm Payrolls (QoQ) 

-0.1%

-0.1% 

-0.1% 

 

09:30

GBP

Trade Balance 

-7.2B

-9.0B 

-10.1B 

 

13:30

USD

Trade Balance 

-42.0B

-44.0B 

-41.9B 

 Sep. 12

06:30

EUR

French CPI (MoM) 

0.7%

0.5% 

-0.4% 

 

07:00

EUR

German CPI (MoM) 

0.4%

0.3% 

0.3% 

 

07:00

EUR

German CPI (YoY) 

2.1%

2.0% 

2.0% 

 

09:30

GBP

Average Earnings Index +Bonus 

1.5%

1.6% 

1.8% 

 

09:30

GBP

Claimant Count Change 

-15.0K

0.5K 

-13.6K 

 

10:00

EUR

Industrial Production (MoM) 

0.6%

-0.1% 

-0.6% 

 

13:30

USD

Import Price Index (MoM) 

0.7%

1.4% 

-0.7% 

 

18:00

USD

10-Year Note Auction 

1.764%

 

1.680% 

 Sep. 13

08:15

CHF

PPI (MoM) 

0.5%

-0.4% 

-0.3% 

 

08:30

CHF

Interest Rate Decision 

0.00%

0.00% 

0.00% 

 

13:30

USD

Core PPI (MoM) 

0.2%

0.2% 

0.4% 

 

13:30

USD

PPI (MoM) 

1.7%

1.1% 

0.3% 

 

13:30

USD

Initial Jobless Claims 

382K

370K 

367K 

 

13:30

USD

Continuing Jobless Claims 

3283K

3318K 

3332K 

 

13:30

USD

PPI (YoY) 

2.0%

1.4% 

0.5% 

 

13:30

USD

Core PPI (YoY) 

2.5%

2.6% 

2.5% 

 

17:30

USD

Interest Rate Decision 

0.25%

0.25% 

0.25% 

 

19:00

USD

Federal Budget Balance 

-191.0B

-155.0B 

-69.6B 

Sep. 14

10:00

EUR

CPI (YoY) 

2.6%

2.6% 

2.6% 

 

10:00

EUR

Employment Change (QoQ) 

0.0%

-0.2% 

-0.2% 

 

10:00

EUR

Core CPI (YoY) 

1.5%

1.7% 

1.7% 

 

13:30

USD

Core CPI (MoM) 

0.1%

0.2% 

0.1% 

 

13:30

USD

Core Retail Sales (MoM) 

0.8%

0.6% 

0.8% 

 

13:30

USD

CPI (MoM) 

0.6%

0.5% 

0.0% 

 

13:30

USD

Retail Sales (MoM) 

0.9%

0.7% 

0.6% 

 

13:30

USD

CPI (YoY) 

1.7%

1.7% 

1.4% 

 

13:30

USD

Core CPI (YoY) 

1.9%

2.0% 

2.1% 

 

14:15

USD

Industrial Production (MoM) 

-1.2%

0.2% 

0.5% 

 

14:55

USD

Michigan Consumer Sentiment 

79.2

74.0 

74.3 

Historical: From 2010 to Present

Highest: 1.4940 USD on May 04, 2011.

Average: 1.3434 USD over this period.

Lowest: 1.1877 USD on Jun 07, 2010.

  

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

Date

Time

Currency

Event

Forecast

Previous

 Sep. 17

13:30

USD

NY Empire State Manufacturing Index 

-2.0 

-5.8 

Sep. 18

09:30

GBP

CPI (YoY) 

2.5% 

2.6% 

 

09:30

GBP

CPI (MoM) 

0.5% 

0.1% 

 

10:00

EUR

German ZEW Economic Sentiment 

-19.0 

-25.5 

 

13:30

USD

Current Account 

-126.0B 

-137.3B 

 

14:00

USD

TIC Net Long-Term Transactions 

 

9.3B 

Sep. 19 

13:30

USD

Building Permits 

0.800M 

0.811M 

 

13:30

USD

Housing Starts 

0.765M 

0.746M 

 

15:00

USD

Existing Home Sales 

4.56M 

4.47M 

Sep. 20 

07:58

EUR

French Manufacturing PMI 

46.4 

46.0 

 

08:28

EUR

German Manufacturing PMI 

45.3 

44.7 

 

09:30

GBP

Retail Sales (MoM) 

-0.4% 

0.3% 

 

09:30

GBP

Retail Sales (YoY) 

2.7% 

2.8% 

 

11:00

GBP

CBI Industrial Trends Orders 

-15 

-21 

Government Bond Auction

Date Time Country 

Sep 17 09:10 Slovakia

Sep 17 10:00 Norway 

Sep 18 08:30 Spain 

Sep 18 09:10 Greece 

Sep 18 09:30 Belgium 

Sep 19 09:10 Sweden 

Sep 19 09:30 Germany 

Sep 19 09:30 Portugal 

Sep 19 10:00 Norway 

Sep 20 08:30 Spain 

Sep 20 08:50 France 

Sep 20 09:30 UK 

Sep 20 09:50 France 

Sep 20 15:00 US 

Sep 20 17:00 US 

Sep 21 15:30 Italy  

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