EUR/USD Forecast Dec. 16, 2011, Fundamental Analysis

The euro attempted to recover some of the heavy losses endured this week as the EUR/USD tried to return above the psychological $1.30 areas on a needed relief after the heavy selloff.

The eased contraction in the services and manufacturing sectors in December alongside the better than expected auction from Spain all helped the euro recover the losses especially after it was followed with good U.S. data that helped support the ongoing correction across the board.

We do not see an overall change in the sentiment yet the market is rationalizing after the heavy losses and after the EU disappointed again.

On Friday the volatility will still be seen and the focus will return to Italy that might help the correction continue as the lower house of parliament votes on the 30 billion euros austerity package and with expectations it will pass the effect might not be strong yet still will offer support for the correction.

The euro zone will start the session at 10:00 GMT with the trade balance figures for October, where the seasonally adjusted prior surplus was 2.1 billion euros, while the prior trade surplus was 2.9 billion euros.

The United States will join the session at 13:30 GMT with the consumer price index for November, where the monthly index could have expanded by 0.1% from the prior drop of 0.1%, while the CPI excluding food and energy monthly index could have also improved by 0.1% from 0.1%, in the time the annual consumer price index is expected to remain unchanged at 3.5%, and finally the CPI excluding food and energy annual index is also projected to linger at 2.1%.