EUR/USD Monthly Fundamental Forecast June 2013

Outlook and Recommendation

The EUR/USD closed the month below the 1.30 price level at 1.2996. The euro remains weak and its only real gains were on the back of the greenback as the Fed’s drove markets the end of the month. Expectations for Federal Reserve policy underwent an important shift in May. Perceptions that the US economy was firming combined with hawkish comments from several Fed members saw markets quickly price in a shift in stance – one where the Fed would lean towards stepping away from its bond purchase program (QE3). The fallout was a sharp rise in 10-year yields that sent them above 2.0%, a steepening in the yield curve and a stronger US dollar (USD). The stated Fed criteria for a decrease in monthly bond purchases has been a substantial improvement in the labor force; as the Fed tone begins to shift it leaves the June 7th nonfarm payroll release as a crucial data point. A print close to 200k will support a broad based USD rally; however, a disappointment will be faced with important questions about the strength of the labor market and is likely to weigh heavily on the USD. Data throughout the month showed a strong recovery but took a tumble the last week, although consumer confidence remains in a positive mode.

 The euro remains weak, with unemployment hitting a record high and some mixed data out of Germany. A broadly stronger USD, an ECB interest rate cut, a building discussion on the potential of negative interest rates but few measures to help reduce fragmentation in credit markets combined with a large euro short position (reported by the CFTC as of May 21 as -$13 billion) should all be weighing heavily on the euro. However, in May the EUR was largely range-bound, failing to break to a fresh year-to-date low. This suggests that there are still large buyers supporting the currency. Traders can expect the euro to trend lower this year as it falls victim to disappointing structural reforms, a lack of progress on the banking union, ongoing credit fragmentation, negative sentiment and a broadly stronger 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 recent analysis and information in our weekly reports and we provide daily updates and outlooks.

Central Bank: FED and ECB

Central Bank – Fed Reserve

Date of next meeting or last meeting: June 19, 2013

Current Rate: 0.00% – 0.25%

Central Bank Name – European Central Bank

Date of next meeting or last meeting: June 6, 2013

Current Rate: 0.50%

Economic events for the month of February affecting EUR, CHF, GBP and USD