EUR / USD Fundamental Analysis Tuesday, 30 June 2009

By: William Doody
The U.S. Dollar closed the second quarter with gains against the world’s major currencies. Against the Euro, the Dollar improved to € = $1.4032, despite evidence of historically low inflation within the EU bloc. Similarly, the Dollar was able to shrug off worse than anticipated consumer confidence results.

The markets will center their attention on several significant events Thursday. The ECB will hold its monthly policy meeting then and although no change in rates is expected, the possibility remains of a market-moving statement from the central bank. Meanwhile, in the US, monthly payroll and unemployment data will be released. Better than expected results should serve to put a bid under the Dollar, while worse than expected scores might provoke significant weakness.

The recent strength of Dollar, gaining 0.6% against the Euro in June, has been predicated on the suggestion that the U.S. will enjoy economic growth sooner than its counterparts. We would caution traders that concrete results need to be seen to support these hopes if the Dollar rally is to continue. If the data do not soon begin to support the idea of a second-half recovery, then the Dollar may well face further downside. We do, however, expect limited movement by the Euro, considering the substantial economic headwinds still present within the EU. While today’s low inflation results were certainly an economic positive, other data, such as the extremely low rate of private sector lending also announced today, present a much more troubled picture. Traders should keep in mind that Friday will be a bank holiday in the United States.