Forex Crunch 3 Reasons Why Impressing Growth Fails to Cheer EUR/USD

3 Reasons Why Impressing Growth Fails to Cheer EUR/USD

Posted: 13 Aug 2010 02:17 AM PDT

European GDP numbers were released today. Germany led the Euro-zone growth with a whopping 2.2%, and also the overall number was excellent – 1%, much better than expected. But the gains in EUR/USD are very limited. Why? Here are three answers.

Apart from German growth, 0.9% more than expected, best since the reunification, France also exceeded expectations, and the weak economies of Spain and Romania also showed positive growth rates. The initial figures for Q2 were definitely great, no matter how you look at them. But EUR/USD is still trading at around 1.2860. It climbed to 1.2915 but went back down to the same levels as before the release. Let’s see why:

Austerity measures to slow growth: In Q2, many governments in Europe adopted severed budget cuts. The impact of these cuts is still to be seen, and it’s expected to damage growth. The Greek economy shows us how austerity measures slow the economy.
Europe enjoying weak Euro: The common currency fell from a peak of 1.5144 in December 2009 to 1.1876 in June 2010. The weak Euro, also in its crosses against other currencies, helped European exports, especially export-oriented Germany. A weaker Euro is in the interest of European governments. While intervention is unlikely, any rise in the currency will hurt the economies, and will be followed by a drop of the currency.
Gloomy market mood: The statement from the Federal Reserve, that was analyzed as a great concern from a double dip recession in the US, is worrying for Europe. The US is usually the economic locomotive of the world. A new recession in the US means trouble elsewhere. And when there’s trouble all over – the US dollar benefits. So does the yen.

In recent days, we’ve seen how risk aversion plays a big role in trading – bad US figures mean a stronger dollar. If genuinely excellent numbers from Europe fail to lift the Euro, it seems that the Euro was rising only to resume falling.

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Forex Daily Outlook – August 13 2010

Posted: 12 Aug 2010 02:00 PM PDT

U.S. Consumer Price Index and Retail sales, US, Consumer Sentiment and Federal Reserve Bank of Kansas President Thomas Hoenig’s speech in Nebraska are the major events closing another trading week. Here is an outlook on today’s market moving events.

In the US, Consumer Price Index, the main measure of inflation and U.S. Retail Sales, an important measure of consumer spending expected to increase by 0.2% from a reading of -0.1% in the previous month. The U.S. retail sales are also forecasted to pick up by 0.5% m/m in July from -0.5% in June.

More in the US, Consumer Sentiment, the University of Michigan’s monthly survey of 500 households on their financial conditions and outlook of the economy forecasted to further improve could resume with a reading of 69.4, up from 67.8 in the previous month.

Later in the US, Federal Reserve Bank of Kansas President Thomas Hoenig delivers a speech titled “Too Big to Fail or Too Big to Succeed? Wall Street, Main Street and America’s Security” at the Mary Riempa Ross Media Center, in Nebraska. Likely to affect interest rates and provide info regarding future monetary policy.

Finally in the US, Business Inventories expected 0.3% rise following 0.1% rise in May could indicate increased future business spending and Preliminary UoM Inflation Expectations reached 2.9% in June and is likely to rise similarly in July.

In Canada, New Motor Vehicle Sales, a sign of consumer confidence, expected to climb 2.1% following 0.2% rise in the previous month.

For more on USD/CAD, read the Canadian dollar forecast.

In Europe, Gross Domestic Product, the main measure of economic activity and growth is expected to confirm expectations that the Euro-zone grew faster by 0.7% in Q2 2010 compared with the first quarter growth of 0.2% and the Flash GDP predicted 0.7% rise from 0.2% rise in the previous quarter
More in Europe, French Preliminary Non-Farm Payrolls measuring the change in the number of employed people, excluding the farming industry and government is foreseen a 0.3% rise, 0.1% more than in the previous quarter and French Preliminary GDP the broadest measure of economic activity and the primary gauge of the economy’s health predicted 0.4% rise following a mere rise of 0.1% in the previous quarter.

Finally in Europe, Trade Balance deficit expected to decrease to 2.3B from 3.0B in May.
For more on the Euro, read the EUR/USD forecast and Casey Stubbs' latest analysis.

In Switzerland, Producer Price Index expected to increase by 0.2% following an unpredicted dip of 0.4% returning to positive values.

That’s it for today. Happy forex trading!

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