Fundamental analysis 17 December 2012 | Inside Forex trading

The first part of the previous trading week was conducted by the principle ?buy the rumors?. Stock market was waiting for results of the FRS meeting and selling the dollar against European currencies in the hope of implementation of a new round of quantitative easing in the USA. The Federal Reserve System didn?t disappoint expectation and announced about renewal of purchase long-term obligation. What is more, it announced about targeted inflation and unemployment rates, Fed targeted 6,5% unemployment rate and 2,5% inflation rate. When these target levels are reached, Fed is going to implement tight monetary policy. This news made market members to think. It stopped pressure on the dollar, but the last day of the previous trading week was marked by a new splash of optimism and dollar selling. As a result the dollar decreased against the euro and the pound, but it strengthened against the yen, which was also negatively influenced by expectations connected with Japanese general elections. The US economic statistics were marked by usual diversity and didn?t change investors? mood. In November manufacturing increased by 1.1% after -0.7% in October, the NFIB Small business optimism index declined from 93.1 to 87.5, in December IBD/TIPP economic optimism index also declined to 45.1after 48.6, when improvement to 51.6 was expected. In October wholesale reserve increased by 0.6% per month and 6.6% per annum, but it was caused by trade volume fall by 1.2% per month. In November producers prices fell again by 0.8% after -0.2% a month ago. Trade deficit increased to 42.2 milliard dollars after 40.3. There will be a few important economic statistics this trading week. In the center of attention will be construction sector statistics for November. A number of new buildings is expected to reduce by 2.4% m/m after it increased by 3.6% m/m. Construction permits are expected to increase by 0.8%m/m in comparison with decrease in October ?by 2.7%m/m. Sale of dwellings is expected to decrease in November to -0.2% m/m after 2.1% m/m a month ago. Durable goods orders are expected to increase. It is most likely that the US economic statistics will not change market events, if there are no surprising results. All attention will be kept by news connected with solution of budget cliff. Signs of consensus between the White House and Congress may support American currency.

EUR

Political events in euro-zone which took place the previous week also supported a single currency. Except expectations of quantitative easing in the USA, euro optimism was brought about by news about Greece which successfully bought back some of its bonds held by private holders (in opinion of European officials), which made Greece accessible to new aid tranche and successful negotiations of the EU Ministers of Finance which agreed on bank supervisory functions for the ECB, which may supervise eurozone?s major banks. But economic statistics are not good. Almost all EU Central Banks cut growth forecast for this year and the next one. Eurozone?s manufacturing fell to -1.4% m/m and -3.6% y/y after -2.3% m/m, -2.8% y/y, and manufacturing PMI and service sector index continue decreasing in N November. Weak demand brought about reduction of inflation pressure in euro zone. By turn, it increased the risk of ephemeral data as ZEW index gave rise to a new impulse of a single currency buying after sudden increase in December in Germany and in whole euro zone. This week one more business outlook will be published. This time IFo will publish its own indicators. Business conditions index is expected to increase in December after it decreased a month ago. It also may result in good mood. But, preliminary consumer sentiment index in euro zone is expected to decrease to -27.0 after -26.9. External trade for October is expected to decrease ? profit more likely decreased to 10.8 milliard euros after 11.3 milliards. Concerning the perspectives, it seems that the euro will continue increasing as a result of the FRS decisions, if there is no negative news from Eurozone and solution of budget problem in the USA drags on.

GBP

British pound was influenced by common mood at stock market. Lack of news from ?islands? made the pound influenced by external events, and the pound also strengthened against the dollar and the yen. Bad news for the pound came from the S&P which downgraded the UK rating outlook to negative. It disappointed investors for a short time. Though there were a few UK economic statistics, but they mostly supported the pound. UK CBI factory orders improved slightly in December, though it is continuing to be in negative zone. RICS survey shows UK house price fell, but a number of new buyers increased which raise hopes for the perspectives. There is some positive news about labor market. Unemployment rates suddenly declined, number of vacancies increased almost to two-years high. This week there are much more UK economic statistics. A new GDP growth outlook and inflation rates will be in the center of attention. It may cause mood swings in the Bank of England concerning monetary policy. ?According to forecast, inflation rate for November remained higher in comparison with targeted level of the bank of England, and the GDP results will not be reviewed. It may support the pound. In the center of attention will be also the indexes which show possible results of current quarter such as service production index, retail sale for November, and publication of protocols of the last meeting of the Bank of England. Signs of probable decline in 4th quarter and quantitative easing implemented by ??? in the nearest future may cause the pound to keep negative mood.

JPY

Last week Japanese currency was selling off against all major opponents. It was caused by the same expectations of monetary weakening in the Land of the Rising Sun after General elections, which will be held on Sunday. Economic statistics didn?t raise hope ? Japanese GDP for the 3rd quarter was at the level of 0.9% q/q, The Bank of Japan?s Tankan report showed Japanese business sentiment worsened. Economic observers index rose, Service-Sector Activity Index declined, and trade balance remained in deficit ? 450 milliard yens. Prices continue to remind deflation, Domestic Corporate Goods Price Index fixed -0.9% y/y, it improved in comparison with the previous result -1.0% y/y.? Orders in the machine-building sector are marked by positive results, they increased by 2.6% m/m, 1.2% y/y after -4.3% m/m, -7.8% y/y before. Concerning this week perspectives for the yen, they most likely remain negative, as according to preliminary results of Japanese General elections, power in Japan will be changed. The Democratic Party of Japan suffers defeat. And S. Abe may become Japan?s next prime minister. He has already announced about his intentions to implement quantitative easing.

Source: http://blog.forex4you.com/fundamental-analysis-17-december-2012/

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