EUR/USD Weekly Fundamental Analysis September 24-28, 2012 Forecast

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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 closed the week at 1.2980, the currency ended the week slightly higher, with equities and commodities advancing and the greenback soft across the board in FX. 

EUR/USD traded a 1.2955 – 1.3047 range intraday, pulling back from last week’s 4-month high, and finding a base at a 23.6% Fibonacci support level at 1.2900 (23.6%, 1.2041/1.3170); price continues to trade above the 200-day EMA (1.2850), and above a descending trendline support zone around 1.2800 (1.3485/1.3380 peaks). 

Date

Last

Open

High

Low

Change %

Sep 21, 2012

1.2980

1.2974

1.3048

1.2956

0.05%

Sep 20, 2012

1.2974

1.3057

1.3059

1.2920

-0.64%

Sep 19, 2012

1.3057

1.3047

1.3085

1.2994

0.08%

Sep 18, 2012

1.3046

1.3109

1.3114

1.3030

-0.47%

Sep 17, 2012

1.3108

1.3114

1.3172

1.3084

-0.05%

Spain could well dominate European and global risks next week.  The Spanish cabinet is expected to approve the government’s 2013 budget and present it to Parliament on Thursday amid rumors that the ECB-IMF-EC troika is negotiating an aid package to Spain that could come as soon as that same day.  What could further play into this is an update to Spain’s calendar YTD budget deficit.  Up to July, Spain’s year-to-date deficit equaled a cumulative €203 billion, or 44% larger than the €141 billion deficit over the same period in 2011.  It’s likely that deficit pressures are becoming more acute in light of deteriorating growth across the eurozone compounded by pressures to bail-out the regions.  Thus, worsening deficit pressures could be the tipping point to encourage Spain to phone a friend.  Portugal also releases its year-to-date budget report next week but is less in the limelight than Spain.  Moderate European data risk will be focused upon German CPI that is expected to come in soft via a flat m/m print.  German business confidence will also be watched for signs that its decline since April to the weakest level since June 2009 may be arrested particularly given improved German investor confidence.  Eurozone confidence readings will also play into this debate.

US markets face elevated data risk throughout much of next week and this carries the potential to impact the global market tone through key waves of updates to big ticket orders, consumer spending and housing markets.  Expect a large retrenchment in durable goods orders when the August print lands on Thursday, but the key will lie beneath the headline. 

We already know there was a large plunge in volatile aircraft orders.  After 260 planes were ordered from Boeing in July in the wake of major world air shows, only one plane was ordered in August.  Thus, while the large gain in aircraft orders in July had propelled durable goods orders higher, the give-back will occur in the August figures.  Markets are likely to look past any scream effect stemming from the headline print and have a second thought focused upon core orders excluding the volatile transportation sector (both autos and planes).  Consensus is expecting a small gain on this component, but there is often very little to go by in making the call so the tail risk is usually high.  A wave of consumer and housing market reports, however, will dominate the week’s attention and provide us with a much better understanding of how the household sector is shaping up in Q3.  S&P Case-Shiller house prices are expected to rise for the sixth consecutive month.  One of the parts to our assessment of the durability of a US housing recovery on pp. 4-7 entails acknowledging that rising home prices have resulted in deterioration in housing affordability compared to the best point for affordability back in February although affordability remains strong.  Weaker affordability combined with potential confidence shocks such as the year-end fiscal ‘cliff’ effect may at least put temporary downside risks to the durability of a turnaround across an otherwise broad array of housing indicators.  Wednesday’s new home sales will be watched in this same context.  There was a gentle rise in new home sales over the back half of last year that petered out into 2012, but more important is that there is a large and growing disconnect between soaring measures of foot traffic through model homes versus still soft new home sales.

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 17-21, 2012 actual v. forecast for Euro, GPB, the Franc, and USD

Date

Currency

Event

Actual

Forecast

Previous

Sep. 17

GBP

Rightmove House Price Index (MoM) 

-0.6%

 

-2.4%

 

USD

NY Empire State Manufacturing Index 

-10.4

-2.0

-5.8

Sep. 18

GBP

Core CPI (YoY) 

2.1%

2.2%

2.3%

 

GBP

CPI (YoY) 

2.5%

2.5%

2.6%

 

GBP

CPI (MoM) 

0.5%

0.5%

0.1%

 

EUR

German ZEW Economic Sentiment 

-18.2

-19.0

-25.5

 

EUR

ZEW Economic Sentiment 

-3.8

-16.5

-21.2

 

USD

Current Account 

-117.4B

-125.5B

-133.6B

 

USD

TIC Net Long-Term Transactions 

67.0B

45.3B

9.3B

Sep. 19  

USD

Building Permits 

0.803M

0.796M

0.811M

 

USD

Housing Starts 

0.750M

0.765M

0.733M

 

USD

Existing Home Sales 

4.82M

4.55M

4.47M

Sep. 20 

EUR

French Manufacturing PMI 

42.6

46.4

46.0

 

EUR

German Manufacturing PMI 

47.3

45.3

44.7

 

EUR

Manufacturing PMI 

46.0

45.4

45.1

 

GBP

Retail Sales (MoM) 

-0.2%

-0.4%

0.3%

 

GBP

Retail Sales (YoY) 

2.7%

2.7%

2.3%

 

EUR

Spanish 10-Year Obligation Auction 

5.666%

 

6.647%

 

GBP

CBI Industrial Trends Orders 

-8

-15

-21

 

USD

Initial Jobless Claims 

382K

375K

385K

 

USD

Continuing Jobless Claims 

3272K

3300K

3304K

 

USD

Philadelphia Fed Manufacturing Index 

-1.9

-4.0

-7.1

 

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

Date

Time

Currency

Event

Forecast

Previous

 Sep. 24

09:00

EUR

German Ifo Business Climate Index 

102.3

102.3

 

09:00

EUR

German Current Assessment 

110.9

111.2

 

09:00

EUR

German Business Expectations 

95.0

94.2

Sep. 25

07:00

EUR

GfK German Consumer Climate 

5.9

5.9

 

15:00

USD

CB Consumer Confidence 

62.0

60.6

Sep. 26

01:00

EUR

German CPI (MoM) 

-0.1%

0.4%

 

01:00

EUR

German CPI (YoY) 

2.0%

2.1%

 

11:00

GBP

CBI Distributive Trades Survey 

5

-3

Sep. 27 

08:55

EUR

German Unemployment Rate 

6.8%

6.8%

 

08:55

EUR

German Unemployment Change 

10K

9K

 

09:30

GBP

Current Account 

-12.4B

-11.2B

 

09:30

GBP

GDP (QoQ) 

-0.5%

-0.5%

 

09:30

GBP

GDP (YoY) 

-0.5%

-0.5%

 Sep. 28 

07:45

EUR

French Consumer Spending (MoM) 

-0.2%

0.1%

 

08:00

CHF

KOF Leading Indicators 

1.55

1.57

Government Bond Auction

Date Time Country 

Sep 24 09:10 Norway 

Sep 24 09:30 Germany 

Sep 24 10:00 Belgium 

Sep 24 15:30 Italy  

Sep 25 08:30 Holland 

Sep 25 08:30 Spain 

Sep 25 09:10 Italy  

Sep 25 14:30 UK 

Sep 25 17:00 US 

Sep 26 09:10 Italy  

Sep 26 09:10 Sweden 

Sep 26 09:00 Germany 

Sep 26 14:30 Sweden 

Sep 26 17:00 US 

Sep 27 00:30 Japan 

Sep 27 09:10 Italy  

Sep 27 17:00 US

 

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About:FX Empire Analyst - Barry Norman

Barry produces a private Daily Market Review newsletter that is distributed around the globe to over 25,000 subscribers and recently published a book on Options Trading that is available from amazon.com

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