5 Factors Weighing on EUR/USD This Week ( June 22, 2009) German business confidence improved marginally which should

have been bullish for the euro, but unfortunately the most actively traded currency pair in the forex market has remained under pressure throughout the European and U.S. trading sessions. So if the EUR/USD is not responding to economic data then what is driving it lower? Five factors: 1. U.S. Treasury Auction One of the big focuses of foreign exchange traders this week is the massive Treasury auction. The U.S. government will be issuing a record $104 billion of 2 year, 5 year and 7 year Treasury notes between Tuesday and Thursday. The reason why currency traders are watching these auctions is because of its scale and also because it will shed some light on investors willingness to fund the U.S. large and growing budget deficit. The auctions will be a big hurdle for the U.S. dollar this week because if demand comes up short, the dollar could get hit but it is not that simple because at the same time, weak demand could drive up yields, which is dollar positive. Either way, over the next couple of days, there will be a lot of focus on the Treasury auctions. 2. First ever 12 month ECB refinancing The ECB refinancing is the biggest story for the EUR/USD this week because the 12 month offer is seen by bond traders as a quasi quantitative easing effort by the ECB because the operations are most likely going to be collateralized by government bonds which can then be posted as collateral to the ECB for funding. Although ECB President Trichet warned that their monetary policy actions can be easily unwound if needed, he also said that policy makers must remain alert despite signs that the slump is decelerating because there are still risks of a sudden emergence of unexpected financial turbulence. 3. Fears that German Debt Could Explode As for Germany, Deputy Finance Minister Werner Gatzer said that total new debt could exceed EUR100 billion next year, which would be much larger than this years record financing needs of EUR80 billion. Looking ahead, we could see further weakness in the EUR/USD if Tuesdays PMI figures fall short of expectations. Despite the improvement in business confidence, which was driven entirely by the expectations component of the report, current conditions remain weak.

4. Comments from ECB President Trichet Although ECB President Trichet warned that their monetary policy actions can be easily unwound if needed, he also said that policy makers must remain alert despite signs that the slump is decelerating because there are still risks of a sudden emergence of unexpected financial turbulence. These bearish comments came after ECB member Nowotny said this morning that interest rates could remain unchanged into 2010. 5. Tuesdays PMI numbers However in the near term, weaker economic data could keep the EUR/USD pressured. German industrial production, factory orders and retail sales have all declined which could prevent a meaningful pickup and possibly even deterioration in manufacturing and service sector PMI. The Most Important Factors That Move EUR/USD Rates. EU consists of about 20 European countries that share one monetary system. The Monetary system is regulated by the European Central Bank (ECB). The main purpose of ECB is the price stability. The pricestability is done if the increase of the Harmonized Index of Consumer Prices is not more than 2%. Every second Thursday of the month, the government of ECB is speaking to announce the interest rates. During the first meeting of each month the ECB makes a press conference where it tell the perspective of the overall economy and monetary system in particular. The best indicator for the pair EUR/USD is the difference between the rate of US Funds and the refinance rate of ECB. Three months Euribor. This is the interest rate on deposits in EU banks but outside the EU. It is used to find out the exchange rates of national currenciesto Euro. If the difference in interest rates of Euribor and Euro-dollar deposit rates goes up, it is likely that the EUR/USD rate will increase. But sometimes, due to the influence of other factors, this indicator doesnt work. German economy is the most important in the Europe, as Germany is the EUs largest economy. The most influential data is the gross domestic product, unemployment, industrial production, inflation, etc. Also one of the most important information in Germany is the Business activity an overview of IFO. Other non-European countries may also make the quotes changes of the EUR/USD currency pair. Strong trends of EUR/CHF and EUR/JPY may course the volatility for EUR/USD. For example EUR/USD may go down because of strong positive news from Japan which first causes the decrease in a rate of EUR/JPY. There is a strong connection between EUR/USD and USD/CHF that consists in some similarities between the Swiss Franc and the Euro. The reason is very simple, as the Swiss economy is much dependent on the economy of EU. The decrease of EUR/CHF rate often predicts or accompanies the reduction of EUR/USD. As any other currency pair, EUR/USD responds to political instability, such as coming to power a coalition government in Germany, Italy or France. Political or financial turmoil in Russia also have a negative influence on EUR/USD as the German business has made significant investment in the Russian economy.

Due to its instability EUR/USD is one of the most traded currency pair for trading Forex in Singapore and other countries in the world. This is also the reason why international and Singapore online brokerage firms offer the lowest spreads on this pair. Watching the moves of EUR/USD you can find many aspects that cause its price changes and plan your trading accordingly. Most of the Singapore brokers give the economical calendars that show the financial events that influence the rates of the major world currencies.