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Euro: A Repeat of December 2004?

In yesterdays Daily Fundamentals, we had pointed out that the peak in the EUR/USD in December 2004 was triggered by a series of disappointing economic data. Today we get a sense of dj vu as we are beginning to see the same scenario unfold once again. Earlier this week, German retail sales dropped significantly and this morning, we saw German unemployment and Eurozone manufacturing PMI all fall short of expectations. Originally expected to drop by 40k, unemployment instead only dropped by 9k, leaving the unemployment rate unchanged at 9.2 percent. The Eurozone PMI manufacturing survey was also originally expected to increase, but it remained unchanged. Aside from the German retail number, these disappointments are not significant. Nonetheless, it does indicate that the combination of a strong Euro and the value added tax increase is beginning to have a negative impact on the Eurozone economy. We are already looking for more Euro weakness than strength though in the short term, that would be dependent upon US data. However if the mild disappointments start to become serious ones, then we could see a major trend reversal in the EUR/USD. In the meantime, ECB officials remain committed to raising interest rates. ECB member Liebscher said today that the central bank needs to remain vigilant to ensure price stability. Over in Switzerland, even though the Swiss franc is stronger, manufacturing PMI also fell short of expectations.

From: http://www.dailyfx.com/story/dailyfx_reports/daily_fundamentals/Euro__A_Repeat_of_December_1178142558155.html

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