EUR/USD Fundamental Analysis December 13, 2012 Forecast

Analysis and Recommendations:

The EUR/USD is set for a volatile evening as the US FOMC is expected to announce additional QE4 increasing the Fed’s balance sheet to 4 trillion US dollars while replacing the expiring Operation Twist with Outright Bond Purchases. Anticipation over the Fed announcement, broad USD weakness combined with a successful  Italian debt  auction, and a total of €32bn tendered in  Greece’s  buyback plan, with a weighted average price of 33.8% have supported the currency. Headlines late yesterday that Germany and France had reached an agreement on the details of a banking union are providing some positive momentum leading into the EU leaders’ summit late this week. Fundamental data was uninspiring as German inflation was slightly softer than expected.

There are very good reasons for replacing the twist’s $45 billion per month pace of purchases of longer dated Treasuries funded by selling shorter dated securities and designed to flatten the curve with a lower volume of Treasury buying no longer funded by selling shorter dated securities.  One is that the twist is sterilized since in aggregate it takes as much money out of the markets as it puts in.  Therefore, unsterilized Treasury buying does not need to be as large as sterilized purchases of longer dated securities in order to have a similar modest impact upon markets and the economy.  Second, the Fed may wish to keep some powder dry given uncertainties in US budget talks and come in a tad lighter for now and accelerate buying later if needed.

A mild risk-on bias is in place in global markets ahead of today’s Fed meeting and notwithstanding further evidence that the GOP and White House are miles apart from one another in US budget negotiations.  European equities are flat (CAC) to a half point higher (Spain) with major benchmarks like the DAX and FTSE100 higher.  US equity futures are mildly higher.  Most major currency crosses are higher against the USD.

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 up to the data analysis and information in our weekly reports

Economic Data December 12, 2012 actual v. forecast

 

Upcoming Economic Events that affect the CHF, EUR, GBP and USD

Government Bond Auction

Date Time Country 

Dec 13 01:30 Japan 

Dec 13 09:30 Spain 

Dec 13 10:10 Italy  

Dec 13 10:30 UK 

Dec 13 16:00 US 

Dec 13 18:00 US 

Dec 14 11:00 Belgium 

Dec 14 15:30 UK