EUR/USD Fundamental Analysis May 25, 2012, Forecast

Analysis and Recommendations:

The EUR/USD continues to sink trading at 1.2576 with no leadership or decisiveness or agreements from the EU summit, it seems that the possibility of a Greek withdrawal is almost predetermined. Regardless of Greece, the markets are seeing the EU as without a plan of action, where inaction is the theme.

Uncertainty in Europe remains the key focus, with only minor developments delivered at the conclusion of the EU summit. In this environment equities are higher even as equity vol has also shifted higher, oil dropped briefly below $90 before recovering (low oil prices helps to offset the negative growth outlook on the back of weak PMIs); bond yields are mixed and the USD is shifting weaker after a poor jobless report and an under forecast durable goods.

Eurozone PMIs disappointed the markets today, when German manufacturing PMI dropped to 45.0, the lowest report since June 2009 and below expectations; while France’s fell to 44.4 and Eurozone dropped to 45. Further evidence that the European crisis is leaking into the core is negative for EUR. Germany also released final Q1 GDP, which came in as expected at 1.2% y/y seasonally adjusted, with exports stronger than expected, but domestic demand and imports weaker than expected. Fundamental deterioration in Europe continues as the union struggles with low growth, strict austerity and faltering confidence.

EU summit fails to deliver but discusses three key points: 1) Eurobonds, with Germany’s stance that closer economic and fiscal ties must precede Eurobonds. 2) Increasing Euro-project bonds that could help by providing capital to those who need it and used specifically to finance growth projects. 3) Euro area wide deposit insurance, which would support the banking system and hopefully decrease the potential for bank runs. The next EU summit is scheduled for the end of June.

Almost all eco data released today was negative. Unfortunately the lack of success at the EU summit did not only spell ongoing problems for EU but also pointed out the completely opposite views of Merkel and Hollande, and supported the idea that their ideology and personalities were so far apart that a working relationship producing positive results was unreachable.

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 May 24, 2012 actual v. forecast

Date	Time	Currency	Event	Actual	Forecast	Previous
May 24	03:30	CNY	Chinese HSBC Mfg PMI	48.70	49.30
07:00	EUR	German GDP (QoQ)	0.5%	0.5%	0.5%
07:00	EUR	German GDP (YoY)	1.7%	1.7%	1.7%
07:58	EUR	French Manufacturing PMI	44.4	47.0	46.9
08:28	EUR	German Manufacturing PMI	45.0	47.0	46.2
09:00	EUR	German Ifo Business Climate	106.9	109.4	109.9
09:00	EUR	Manufacturing PMI	45.0	46.1	45.9
09:00	EUR	German Current Assessment	113.3	117.4	117.5
09:00	EUR	German Business Expectations	100.9	102.0	102.7
09:30	GBP	BBA Mortgage Approvals	32.4K	32.3K	31.9K
09:30	GBP	Business Investment (QoQ)	3.6%	3.2%	-3.3%
09:30	GBP	GDP (QoQ)	-0.3%	-0.2%	-0.2%
09:30	GBP	GDP (YoY)	-0.1%	0.0%	0.0%
13:30	USD	Core Durable Goods Orders	-0.6%	0.9%	-0.8%
13:30	USD	Durable Goods Orders (MoM)	0.2%	0.5%	-3.7%
13:30	USD	Initial Jobless Claims	370K	370K	372K
13:30	USD	Continuing Jobless Claims	3260K	3250K	3289K