EUR/USD Fundamental Analysis Jan. 26, 2012, Forecast

Economic Events: (GMT)

07:00     EUR     GfK German Consumer Climate     5.6     5.6

The Gfk German Consumer Climate Index measures the level of consumer confidence in economic activity. The data is compiled from a survey of about 2,000 consumers which asks respondents to rate the relative level of past and future economic conditions.

A higher than expected reading should be taken as positive/bullish for the EUR,while a lower than expected reading should be taken as negative/bearish for the EUR.

11:00     GBP     CBI Distributive Trades Survey     1     9

The Confederation of British Industry (CBI) Distributive Trades Survey (DTS) measures the health of the retail sector. The reading is compiled from a survey covering 20,000 firms responsible for 40% of employment in retailing. It includes measures of sales activity across the distributive trades. It is a leading indicator of consumer spending. The figure is the difference between the percentage of retailers reporting an increase in sales and those reporting a decrease.

A higher than expected reading should be taken as positive/bullish for the GBP, while a lower than expected reading should be taken as negative/bearish for the GBP.

13:30     USD     Core Durable Goods Orders (MoM)     0.9%     0.3%

13:30     USD     Durable Goods Orders (MoM)     2.0%     3.7%

Durable Goods Orders measures the change in the total value of new orders for long lasting manufactured goods, excluding transportation items. Because aircraft orders are very volatile, the core number gives a better gauge of ordering trends. A higher reading indicates increased manufacturing activity.

A higher than expected reading should be taken as positive/bullish for the USD, while a lower than expected reading should be taken as negative/bearish for the USD.

 13:30    USD     Initial Jobless Claims     370K     352K

 13:30    USD     Continuing Jobless Claims     3432K

Initial Jobless Claims measures the number of individuals who filed for unemployment insurance for the first time during the past week. This is the earliest U.S. economic data, but the market impact varies from week to week. Continuing Jobless Claims measures the number of unemployed individuals who qualify for benefits under unemployment insurance.

A higher than expected reading should be taken as negative/bearish for the USD, while a lower than expected reading should be taken as positive/bullish for the USD.

15:00     USD     New Home Sales     320K     315K

New Home Sales measures the annualized number of new single-family homes that were sold during the previous month. This report tends to have more impact when it’s released ahead of Existing Home Sales because the reports are tightly correlated.

A higher than expected reading should be taken as positive/bullish for the USD, while a lower than expected reading should be taken as negative/bearish for the USD.

Analysis and Recommendations:

The EUR/USD is currently trading 1.2974 down from this mornings high of 1.3052

German Chancellor Merkel surprised the markets today when she said that there is the possibility of a Greek default.  Merkel conceded that Europe’s first ever multibillion bailout coupled with savage austerity was not working after two years of crisis that has brought the single currency to the brink of unravelling. Merkel also  noted that she would like the European court of justice (ECJ) be empowered to police the public spending and budget policies of the 17 countries in the euro.

Merkel called for the eventual creation of a European political union, with many more national powers ceded to a central government, a strengthened bicameral European parliament, and the ECJ assuming the role of Europe’s supreme court.

In light of these statements and demands, it is surprising that the euro has not dropped like a hot potato. These feeling are not mutually shared among the nations of the EU.

Greek creditors today insisted that as part of a negotiated default that the ECB also take a significant write down of the Greek holding, which the ECB has flatly refused. Christine Lagarde of the IMF today said it maybe necessary for the ECB to give in.

In Switzerland the World Economic Summit is opening this evening with Chancellor Merkel as the keynote speaker.

In the US, President Obama will make his State of the Union speech, pushing for more economic sharing and a better distribution of the wealth of the nation. He is expected to show that the US is in recovery mode. Economic reports from the US housing industry dissappointed today, giving the dollar some weakness. Allowing the euro to recover.

The markets are waiting for FOMC statements shortly along with Angela Merkels speech in Davos.

The euro is not in a sustainable position and what is keeping afloat is beyond me. Perhaps the markets are just waiting for an official statement or for the other shoe to drop.

Today the markets began to focus on Portugal, who will likely need additional bailout money shortly. Credit Default Swap insurance surged today on Portugese debt, a sign that problems are in the works.

Upcoming Govt Bond Sales Dates

Jan 26  10:10  Italy   Auctions CTZ/BTPei

Jan 26  18:00  US  Auctions 7Y Notes

Jan 27  10:10  Italy   BOT auction