EUR/USD Weekly Fundamental Analysis June 4 – 8, 2012, Forecast

Introduction: Out of the major currency pairs the most popular and easy to trade currency pair is the EUR/USD. It has become so popular with traders these days that even when there is no visible trade to be had it is yet traded as a matter of habit. This is of course something that should be avoided and any investor who trades this currency pair wisely can do so successfully with sizable profits at the end of the day.

The first thing with trading currencies is to realize that the EUR/USD is made up of two separate currencies although considered to be one unit when taken as a pair. The weaknesses and strengths of each currency have to be taken into consideration when trading the unit as it influences the final outcome. Another factor that is often overlooked by traders or investors is that the weakening of one currency along with the strengthening of the other currency in the pair results in the generation of pips. It is according to this that entry and exit from the Forex market has to be done in order to maintain profitability.

• The interest rate differential between the European Bank(ECB) and the Federal Reserve(FED)
• Dollar strength drives EUR/USD lower
• FED intervention to weaken the dollar the sends EUR/USD higher

 

Weekly Analysis and Recommendation:

The EUR/USD  fell all week until Friday when a negative sentiment hit the US markets and investors moved away from the USD pushing gold up 62.00 in the session. The immediate weakness in the USD allowed the euro to pick up a few pips. Risk aversion remains the theme and the euro did not pick up any stamina. The euro ended the week at 1.2435

European markets will lead global influences again on four main counts.  First, German releases could be the most important development in the eurozone as consensus expects each of factory orders, industrial production and exports to take a step backward from solid gains the prior month.  If correct, then that would stoke renewed fears about the ability of the German economy to remain resilient in the face of heightened weakness in several of its key export markets including China, the rest of the eurozone, and the US (where the economy is running at stall speed excluding the auto sector).  Second, seemingly daily polls out of Greece will whipsaw markets around right up until the results of the June 17th elections are announced.  Third, consensus and markets expect the ECB to remain on hold, and likewise for the Bank of England.  In the middle of these releases, Germany conducts a 5- year bond auction, but the fourth most important development could well be a planned Spanish auction on Thursday.  Additional data risk will be posed by eurozone retail sales whereby next week’s print could drive negative spending growth in year-over-year terms, eurozone GDP revisions, and French jobs.

US markets should face relatively few domestic market influences next week and will instead spend much of the week focused upon global factors.  Data flow will be fairly light.  Total factory orders are expected to come in roughly flat and in line with previously released durable goods orders, and the only new information here will be nondurable goods orders.  ISM services should continue to demonstrate signs of a modest service sector expansion, but the pace has significantly diminished since February.  The Fed’s Beige Book should point to mixed regional economic conditions, with regional anecdotes of soft job markets combined with mildly more encouraging manufacturing and housing markets.  Friday’s April trade report will be used partly for revisions and how they may impact the third swing at US Q1 GDP, but should also start off Q2 on mildly firmer footings in nominal terms as lower oil prices begin to benefit the trade balance.  Offsetting much of this via exports is likely to be softening growth in China and no growth in Europe on balance.

This week will be all about news flows, listen for Fed statements and speeches and watch for news from the IMF, ECB and EU over Spain and Italy of course Greece remains out there until the elections in two weeks.

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.

Major Economic Events for the week of May 28- June 1 actual v. forecast for Euro, GPB, and the Franc

Historical:

Highest: 1.5091 USD on Dec 03, 2009.

Average: 1.3709 USD over this period.

Lowest: 1.19 USD on Jun 07, 2010.

 

Economic Highlights of the coming week that affect the Euro, GBP, CHF and the USD