Central Bank

Recovering U.S. economic data through year end were only briefly mentioned in the Fed's last Statement. Instead, caution remained, with the downside risks highlighted again. The still-weak growth outlook, along with the release of FOMC fed funds forecasts, prompted policymakers to vote to keep rates exceptionally low until at least late 2014. No changes in rates or other easing moves are expected at the March meeting.

Official Rate: 0%-to-0.25% • Quantitative Easing: On Hold • Last Decision January 24-25, unch • Next Decision: March 13, Hold

The European Central Bank held rates steady for a second straight month in February, with signs of stabilizing economic data outweighing any concerns about recession and the debt crisis. Despite the decent data of late, we are unconvinced that the worst has passed in the Euro Area. Further easing remains possible but likely not in March. The sizeable bid at the second 3-year LTRO should be heartening for the ECB, especially in light of the increase in bank lending to start 2012. If bank lending contracts consistently again, further LTROs are possible.

Official Rate: 1.00% • Quantitative Easing: No • Last Decision: February 9, unch • Next Decision: March 8, Hold

 

EUR/USD

EUR/USD Monthly Fundamental Forecast March 2012

Outlook and Recommendation

The EUR/USD  has rallied early in 2012. The combination of an agreement on Greeks, ECB policy, a broadly weaker USD and repatriation flows have all supported the retracement. In addition, rising oil prices limits the ability of the ECB to cut interstates in the future; leaving the EUR as an unlikely bull story. However, the hurdles ahead are large and we executer to fade from current levels and trend towards1.25 later this year. The euro (EUR) has rebounded considerably, reaching new highs in February approaching 1.35 following the approval of Greek aid and ahead of additional policy accommodation from the ECB. Despite the recent rally, a sentiment indicated by CFTC data remains bearish, with a near-record net short position at US$23.5 billion. We anticipate EUR to decline into year end and hold a target of 1.25. The decline should begin towards the end of the first quarter finding the euro trading slightly above the 1.30 level

The first few months of 2012 have been marked by a risk rally, where equities and commodities have been strong and the US dollar (USD) has weakened materially. The foundation for this was laid by G4 central bank policy that has succeeded in decreasing much of the tail risk than hung over markets in 2011. Developments in Europe continue to be a key concern; however, markets have rewarded the euro (EUR) as several important hurdles have been passed. All is not solved, but shifts in central bank policy, economic fundamentals and investor sentiment have all soothed near-term fears. On the back of this, volatility across asset classes has collapsed, adding to the incentive to participate in the carry trade (selling lower yielding instruments to buy higher yielders). Flows into equities and emerging markets have been strong, supporting on-USD currencies. Outside of Europe, geopolitical risk and rising oil prices are complicating the economic outlook materially and pose a significant risk for 2012.

The US currency environment is dominated by the US economic outlook, flows and the broader movement of the US dollar. For the USD, the improving economic outlook and dollar positive flows stemming from the European crisis have been offset by historically loose US monetary policy that includes quantitative easing and rising oil prices. There are limits to how long the US economy can withstand a strong currency. Accordingly, we expect the USD to trend lower this year against most currencies.

Revisions to the fourth-quarter GDP figures confirmed the original estimate, the US economy advanced at the fastest pace in six quarters. Over 90% of the advance was accounted for by inventory rebuilding and stronger motor vehicle sales, as supply chain disruptions of the Japanese earthquake dissipated. However, stockpiles remain historically low, and turnover ratios suggest restocking is occurring at a slower pace than final demand, a reflection of conservative business sentiment. Amid an uncertain global economic outlook, US economic indicators have been more upbeat in recent months, reducing some of the downside risks. This should not, however, be used to extrapolate a stronger growth pattern for the year. The US economy continues to face cyclical and structural headwinds, amplified by the ongoing European debt crisis and the recent surge in oil prices. Aside from a still-cautious sentiment, domestic challenges include fiscal consolidation, political discord, and uncertainty over the presidential election results, and ongoing deleveraging.

Historic Chart

 width=710

March Major Economic Events

country

date

name

forecast

previous

USA

20120309 13:30:00

Nonfarm Payrolls

207K

243K

USA

20120309 13:30:00

Unemployment Rate

8.30%

8.30%

USA

20120313 19:00:00

FOMC Minutes

 
 

USA

20120316 12:30:00

Consumer Price Index (YoY)

 

2.90%

USA

20120316 12:30:00

Consumer Price Index Ex Food & Energy (YoY)

 

2.10%

USA

20120329 13:30:00

Gross Domestic Product Annualized

 

1.80%

USA

20120329 13:30:00

Gross Domestic Purchases Price Index

 

2.60%

 
 
 
 
 

 
 
 
 
 

Germany

20120305 08:53:00

Purchasing Manager Index Services

52.6

53.7

Eurozone

20120305 08:58:00

Purchasing Manager Index Services

49.4

50.4

Eurozone

20120305 09:30:00

Sentix Investor Confidence

-7

-11.1

Eurozone

20120305 10:00:00

Retail Sales (MoM)

0.00%

-0.40%

Eurozone

20120305 10:00:00

Retail Sales (YoY)

-1.50%

-1.60%

Eurozone

20120306 10:00:00

Gross Domestic Product s.a. (QoQ)

-0.30%

0.20%

Eurozone

20120306 10:00:00

Gross Domestic Product s.a. (YoY)

-0.70%

1.40%

Germany

20120307 11:00:00

Factory Orders s.a. (MoM)

0.80%

1.70%

Germany

20120307 11:00:00

Factory Orders n.s.a. (YoY)

-1.70%

0.00%

Germany

20120308 11:00:00

Industrial Production s.a. w.d.a. (YoY)

1.10%

0.90%

Germany

20120309 07:00:00

Consumer Price Index (MoM)

0.70%

-0.40%

Germany

20120309 07:00:00

Consumer Price Index (YoY)

2.30%

2.10%

Eurozone

20120312 00:00:00

EU Finance Ministers meeting

 
 

Germany

20120313 10:00:00

ZEW Survey - Current Situation

 

40.3

Germany

20120313 10:00:00

ZEW Survey - Economic Sentiment

 

5.4

Germany

20120320 07:00:00

Producer Price Index (YoY)

 

3.40%

Germany

20120322 08:28:00

Purchasing Manager Index Manufacturing

 

50.2

Germany

20120322 08:28:00

Purchasing Manager Index Services

 

52.6

Germany

20120326 06:00:00

Retail Sales (MoM)

 

-1.60%

Germany

20120326 06:00:00

Retail Sales (YoY)

 

1.60%

Germany

20120326 08:00:00

IFO - Business Climate

 

109.6

Germany

20120326 08:00:00

IFO - Current Assessment

 

117.5

Germany

20120326 08:00:00

IFO - Expectations

 

102.3

Germany

20120327 06:00:00

Gfk Consumer Confidence Survey

 

6

Germany

20120329 07:55:00

Unemployment Change

 
 

Germany

20120329 07:55:00

Unemployment Rate s.a.

 

6.80%

 

 

EUR/USD Pivot Points (Time Frame: 1 Day)

 

Name S3 S2 S1 Pivot R1 R2 R3

Classic
1.3031
1.3108
1.3154
1.3231
1.3277
1.3354
1.3400

Fibonacci
1.3108
1.3155
1.3184
1.3231
1.3278
1.3307
1.3354

Camarilla
1.3165
1.3176
1.3188
1.3231
1.3210
1.3222
1.3233

Woodie's
-
1.3100
1.3137
1.3223
1.3260
1.3346
-

DeMark's
-
-
1.3254
1.3220
1.3131
-
-