By FXEmpire.com
Analysis and Recommendations:
The EUR/USD declined after the release of higher than expected German unemployment data as markets now have to worry about the strength of the EU workhorse, in light of CPI declines this week also. With the EU summit the main event risk over the next two days. Before the Greek elections, the risk had been that Greece might elect a leadership that intended to precipitate some type of confrontation with its EU and IMF creditors – a confrontation that some feared would jeopardize Greece’s continued use of the euro as its sole currency. It was believed at the time that this summit could be the mop up operation after the Greek elections. The outcome of the Greek elections has precluded that necessity.
Instead, the focus has moved to the much larger issue of the rising risk premium on Spain and Italy’s bonds as yields on both have climbed markedly since Spain’s third largest bank, Bankia, announced that it would require a bailout of approximately EUR 30bn – roughly the cumulative amount that Spain had previously said was required to recapitalize its entire financial system. Spain has subsequently appealed to the Eurogroup for financing from the EFSF/ESM. Italy, which does not seem to require a bank bailout and has made meaningful structural adjustments in order to close its budget deficit, has advanced its view that some type of collective funding mechanism is needed so that it does not need to pay the fairly elevated market interest rates that it is being charged on new issues (Italy issued 2022 paper today at a yield of close to 6.2%). The debate has therefore moved to:
a) Creating a banking union for collective bank oversight.
b) Deepening the fiscal union to create collective fiscal oversight.
c) The discussion of collective debt issuance via Eurobills, Eurobonds, or some type of collective debt issuing body.
All of these are larger issues than can possibly be addressed comprehensively at one Euro summit (and not all of them are necessarily welcome developments).For what it’s worth, there will probably be progress on the two issues that had been on the agenda before the Greek election, namely:
d) Fiscal stimulus that will satisfy the demands that policy focus on ‘growth’ and not just ‘austerity’ (European leaders have agreed to measures that will optically resemble a stimulus package of EUR 130bn, although this is to a decent extent the repackaging of existing policies).
e) The relaxing of the pace of the implementation of Greece’s adjustment measures.
The risk is that larger short-term measures are introduced in order to address the very steep yields on Spanish and Italian debt.
Even if there are not any tangible measures introduced, the summit definitely provides ample space for rumors to circulate in markets. In sum, markets will be on edge today and tomorrow.
These shifts and changes are now forcing the EU Finance Ministers into action of some sort.
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
Economic Data for June 28, 2012 actual v. forecast… and you didn’t think it could get worse. The German workhorse breaks a leg…
|
Date |
Currency |
Event |
Actual |
Forecast |
Previous |
|
Jun. 28 |
JPY |
Retail Sales (YoY) |
3.6% |
3.0% |
5.7% |
|
AUD |
HIA New Home Sales (MoM) |
0.7% |
6.9% |
||
|
GBP |
Nationwide HPI (MoM) |
-0.6% |
0.1% |
0.2% |
|
|
EUR |
German Unemployment Rate |
6.8% |
6.7% |
6.8% |
|
|
EUR |
German Unemployment Change |
7K |
5K |
0K |
|
|
GBP |
Business Investment (QoQ) |
1.9% |
3.6% |
3.6% |
|
|
GBP |
Current Account |
-11.2B |
-9.0B |
-7.2B |
|
|
GBP |
GDP (QoQ) |
-0.3% |
-0.3% |
-0.3% |
|
|
GBP |
GDP (YoY) |
-0.2% |
-0.1% |
-0.1% |
|
|
EUR |
Italian 10-Year BTP Auction |
6.19% |
6.03% |
And the good news is or almost good news
|
USD |
Initial Jobless Claims |
386K |
385K |
392K |
|
USD |
GDP Price Index (QoQ) |
2.0% |
1.7% |
1.7% |
|
USD |
GDP (QoQ) |
1.9% |
1.9% |
1.9% |
|
USD |
Continuing Jobless Claims |
3296K |
3280K |
3311K |
Upcoming Economic Events that affect the CHF, EUR, GBP and USD
|
Date |
Time |
Currency |
Event |
Previous |
|
Jun 29 |
29th-4th |
EUR |
0.6% |
|
|
6:45 |
EUR |
0.6% |
||
|
7:00 |
CHF |
0.81 |
||
|
8:00 |
EUR |
2.5% |
||
|
9:00 |
EUR |
2.4% |
||
|
12:30 |
USD |
0.1% |
||
|
12:30 |
USD |
0.3% |
||
|
13:45 |
USD |
52.7 |
||
|
13:55 |
USD |
74.1 |
Click here to read EUR/USD Technical Analysis.
Originally posted here
