EUR/USD Weekly Forecast January 2-6, 2012, Fundamental Analysis

The EUR/USD pair ended a strongly bearish month, where the pair declined sharply in December after European leaders failed to quell jitters and provide markets with a final solution to end the two-year debt crisis, while the European Central Bank explained that it will not intervene and act as a lender of last resort, which spread pessimism and fears in the market, especially when Italian yields remained unsustainable and doubts controlled the market that soon Italy will fall, and then the monetary policy will follow.

This week the volume is expected to remain low with the start of a new year; however, the volume will start to incline when theUnited Statesand other European nations are expected to join the session starting from Tuesday.

The EUR/USD pair could fluctuate heavily and is expected to be very volatile next week, especially with the heavy and critical fundamentals awaited from Europe and theUnited States, where manufacturing and services data are expected to affect the pair sharply this week.

Moreover, eyes will also be focused this week on the jobs report from theUnited States, which is leading the recovery nowadays. However, downbeat jobs figures from the world’s largest economy could affect the high yielding currencies such as the EUR/USD and will trigger more demand for the safe havens such as the U.S. dollar index.

Unemployment figures from the euro area region andGermanywill also affect the pair sharply during the week, where the outlook forEuropein 2012 depends on the recovery in first half of the year, where European leaders should start to implement measures in order to control the debt crisis, or the outlook should worsen for the second half.

European Confidence and retail sales index are also due this week, where we expect the pair to fluctuate heavily this week due to the heavy load of major fundamentals affecting the pair directly.

Other news from the euro area and the U.S. economy to affect the pair this week:

Monday January 2:

Germanywill start this week at 08:55 GMT with the final PMI Manufacturing index for December, where the manufacturing performance is expected unrevised at 48.1.

The euro zone will join this week at 09:00 GMT with the final PMI Manufacturing index for December, which is expected to linger at 46.9.

TheUnited Stateswill be on New Year’s DayHoliday.

Tuesday January 3:

Germanywill start the session at 08:55 GMT with the unemployment report of December, where the seasonally adjusted unemployment rate is expected unchanged at 6.9%, while unemployment is expected to decline by 10 thousands compared with the previous decline of 20 thousands.

TheUnited Stateswill join the session at 15:00 GMT with the Construction Spending Monthly Index for November, which could have expanded by 0.5% from 0.8%.

TheUnited Stateswill also release the ISM Manufacturing for December, with expectations the index could have expanded to 53.2 from 52.7.

At 19:00 GMT the Federal Reserve will provide markets with the Minutes of the FOMC last meeting.

Wednesday January 4:

Germanywill start the day at 08:55 GMT with the final PMI Services index for December, which could have lingered at 52.7.

The euro zone will join the session at 09:00 GMT with the PMI Composite and Services final indexes for December, where both indexes are expected unchanged at 47.9 and 48.3 respectively.

At 10:00 GMT the euro-area region will provide markets with the annual CPI estimate of December, where inflation is expected lower at 2.8% from 3.0%.

TheUnited Stateswill join the session at 15:00 GMT with the factory orders index for November, which could have expanded by 2.0% from the previous drop of 0.4%.

Thursday January 5:

The euro zone will start the session at 10:00 GMT with the Industrial New Orders indexes for October, where the non-seasonally adjusted annual index could have expanded by 3.3% from 1.6%, while the seasonally adjusted monthly index could have expanded by 2.5% from the previous drop of 6.4%.

The euro zone will also release the PPI indexes for November, where the monthly index is expected to remain steady at 0.1%, while the annual index could have eased to 5.2% from 5.5%.

TheUnited Stateswill join the session at 13:15 GMT with the ADP Employment Change from December, where the private sector is projected to add 175 thousand additional jobs compared with the previous addition of 206 thousand jobs.

At 13:30 GMT theUnited Stateswill release the Initial Jobless Claims (DEC 31), where jobless claims are expected lower at 375 thousands compared with the prior 381 thousands.

At 15:00 GMT theUnited Stateswill provide the ISM Non-Manufacturing Composite index for December, which could have expanded to 53.0 from 52.0.

Friday January 6:

The euro zone will start the session at 10:00 GMT with Confidence Report of December, where the business climate indicator is expected to drop further to 0.46 from 0.44, while the consumer confidence final index is expected unrevised at -21.2. The economic confidence could have eased to 93.2 from 93.7, while the industrial and services confidence are projected to drop further to 7.5 and 2.1 from 7.3 and 1.7 respectively.

The euro-area region will also provide markets with the Retail Sales index and the Unemployment rate, where the annual retail sales index could have dropped by 0.9% from the previous drop of 0.9%, while the monthly index is projected to fall by 0.4% from the prior expansion of 0.4%. The unemployment rate could have remained unchanged at 10.3%.

Germanywill join the session at 11:00 GMT with the Factory Orders index for November, where the seasonally adjusted monthly index is projected to drop by 1.6% from the previous expansion of 5.2%, while the non-seasonally adjusted annual index could have fallen by 1.2% from the prior growth of 5.4%.

TheUnited Stateswill join the session at 13:30 GMT with the Monthly Jobs Report for December, with expectation the economy will add 150 thousands new jobs compared with the prior addition of 120 thousands, yet the unemployment rate is projected to climb to 8.7% from 8.6%. The average hourly earning monthly index could have slightly expanded by 0.2% from the previous drop of 0.1%.