EUR/USD Weekly Fundamental Analysis for August 08-12, 2011

The EUR/USD ended another volatile week with more losses versus the dollar amid the prevailing jitters over the outlook for the recovery and the worsening debt crisis.

The yield on Italian and Spanish bonds continued to surge and the focus was on the weekend meetings between the euro area leaders as France and Germany are taking more preemptive steps in holding talks with Italy and Spain to ensure that the nations are safe from harm and speculation.

This week will again be about the speculation and the outlook for the recovery amid the tight ability of governments and central banks to maneuver. The fundamental load this week is light and the focus will mainly be on the FOMC rate decision and whether the Fed will take more action following those from the SNB, BoJ and extended money operations from the ECB to ease the market tension.

With the prevailing fear over the outlook for the recovery and the deepening debt crisis the volatility will extend again, especially as the lack of major fundamentals will leave the focus on the sentiment to drive the market movements and accordingly we expect heavy volatility to prevail this new week for the EUR/USD.

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

Monday August 08:

The week will start light with no data queued for release from both the euro area and the United States which leaves the market volatility and choppy trading dominant ahead of the FOMC decision.

Tuesday August 09:

Germany will start the day at 06:00 GMT with June trade figures, where the trade surplus is expected to narrow slightly to 14.0 billion from 14.8 billion as exports are expected with 1.0% drop following 4.3% rise and imports to drop 1.8% following 3.7% rise. The current account surplus on the other hand is expected to widen to 10.0 billion euros from 6.9 billion.

The main focus will be on the FOMC rate decision at 18:15 GMT where the Federal Reserve is expected to keep the rate at their historical low of 0.0-0.25% and might not take more actions to support the fainting recovery, nevertheless, investors are bracing for a surprise after the unexpected moves from the SNB and the BoJ and followed by the ECB with expanding the special money operations to ease the market tension and the Fed might just do so.

Wednesday August 10:

Germany will release the final estimate for the July consumer price index which is expected unrevised at 0.4% rise on the month and 2.4% on the year and in EU harmonized terms also to remain unrevised with 0.5% monthly gain and 2.6% on the year.

From the U.S. the wholesale inventories index for June is due at 14:00 GMT and expected to ease to 1.0% following 1.8%.

At 18:00 GMT the Monthly Budget Statement for July is due with the deficit expected to widen to $140.0 billion from $43.1 billion.

Thursday August 11:

The ECB will release the monthly report at 08:00 GMT and will include the details of the special liquidity operations and the extension of the money operations that Trichet announced last week when the bank left rates steady at 1.50%.

The data from the United States will start as usual with the weekly jobless claims at 12:30 after they rose last week to 400 thousand.

Also at 12:30 GMT the trade balance for June is due and the deficit is expected to narrow to $47.5 billion from $50.2 billion.

Friday August 12:

The euro area industrial production for June is due at 09:00 GMT and expected to remain steady on the month with 0.1% gain and to rise 4.5% on the year following 4.0%.

The United States will end the week with a high note starting with the retail sales index for July at 12:30 GMT which are expected with 0.4% rise following 0.1% and excluding autos with 0.2% rise after remaining unchanged in June and excluding auto and gas to hold steady with 0.2% rise.

The University of Michigan Confidence for August is due at 13:55 and expected with a slight drop to 63.2 from 63.7.

The business inventories index for June will follow at 14:00 GMT and expected to slow to 0.6% from 1.0% the previous month.