Investopedia's Forex Outlook For July 2012
  1. Investopedia's July 2012 Forex Outlook: Macroeconomic Highlights
  2. Investopedia's July 2012 Forex Outlook: Upcoming Events To Watch

Investopedia's July 2012 Forex Outlook: Macroeconomic Highlights

As we move enter July, the global economy continues to struggle amid a lackluster U.S. recovery and ongoing indecision and banking problems in the eurozone. Asia has also started to feel the slowdown after posting several years of strong growth rates, which could pose further problems for the financial markets, taking away a key source of global growth.

Macroeconomic Highlights

U.S. Slows, Extends Operation Twist
The U.S. economy appears to be slowing by many accounts. On June 20, the U.S. Federal Reserve lowered its outlook for the year to 2.4% from its 2.9% projection earlier this year. Unemployment isn't expected to improve much either, with the jobless rate expected to fall no lower than 8% by the end of the year, according to the same report by the central bank.

Many U.S. economic indicators have also confirmed this slowdown. The U.S. manufacturing sector grew at its slowest pace in 11 months in June, while new unemployment claims fell only marginally in recent weeks. Meanwhile, existing home sales fell 1.5% to a 4.55 million annual rate in May, according to the National Association of Realtors.

As a result, the Federal Reserve opted to extend its bond-buying program known as "Operation Twist" until the end of the year in response to this slowdown. Under the program, the central bank will continue purchasing U.S. Treasury Bonds. But while the news came as a surprise, the effects were short-lived, and the stock market reversed within hours of the announcement.

SEE: Key Strategies To Avoiding Negative Bond Returns

Euro Worries Persist, Calls on Germany
Spain's bailout may have averted a near-term crisis, but the lack of a cohesive rescue plan means worries still persist. Bond yields for troubled countries like Spain and Italy remain near unsustainable levels, despite a brief reprieve. Meanwhile, Moody's recently downgraded 15 of the world's largest banks, adding to concern in the financial markets.

The most popular solution to these woes are so-called Eurobonds that would be jointly guaranteed by all members of the monetary union. Former British PM Tony Blair perhaps said it best: "The only thing that will save the single currency now is in a sense a sort of grand plan in which Germany is prepared to commit its economy fully to the single currency."

Unfortunately, Germany remains very resistant to the idea. German Chancellor Angela Merkel has shown no signs of budging on Eurobonds or bank guarantees amid pressure from newly elected French President Francois Hollande. Merkel instead insists that euro states must agree to much deeper fiscal integration before such financial pledges are made.

Asian Growth Continues to Stumble
Asia may be the world's growth driver, but those rates appear to be slowing. Chinese manufacturing activity weakened to a seven-month low in June, according to an HSBC survey, indicating deterioration in business conditions at factories. Meanwhile, there are also some concerns that government data may be overly optimistic.

A notable exception is Japan's economy, which is expected to continue seeing a modest recovery driven by strong consumer spending and rebuilding efforts. Recently, the government also upgraded its outlook on capital spending for the first time in three months, citing a pick-up in corporate profits and support from the reconstruction.

SEE: 7 Currency Blunders You Could Cash In On Slideshow

Britain's Signs of Recovery After Double-Dip
Britain has taken a unique approach to combatting its economic decline. Unlike the U.S. and eurozone, the region has instead opted to impose austerity measures and hike taxes. While it recently slipped into a double-dip recession, the country's leaders insisted this was primarily due to higher commodity prices, a weak banking sector, and the eurozone crisis.

Despite the slowdown, there are also some signs of a turnaround after new lending and infrastructure initiatives were implemented. Retail sales increased in May after a weak showing in April, with the Office for National Statistics showing a 1.4% gain in May. These figures were above economist forecasts of a 1.2% increase for the same period.

Investopedia's July 2012 Forex Outlook: Upcoming Events To Watch

  1. Investopedia's July 2012 Forex Outlook: Macroeconomic Highlights
  2. Investopedia's July 2012 Forex Outlook: Upcoming Events To Watch
RELATED TERMS
  1. Forex Spot Rate

    The current exchange rate at which a currency pair can be bought ...
  2. Forex Market

    The market in which participants are able to buy, sell, exchange ...
  3. Forex Scalping

    A trading strategy used by forex traders to buy a currency pair ...
  4. Forex - FX

    The market in which currencies are traded. The forex market is ...
  5. Forex Account

    The type of account a forex trader opens with a retail forex ...
  6. Forex Training

    A form of instruction or mentorship that provides information ...
RELATED FAQS
  1. In the forex market, how is the closing price of a currency pair determined?

    The foreign exchange market, or forex, is the market in which the currencies of the world are traded by governments, banks, ... Read Answer >>
  2. What are the most common market indicators forex traders follow?

    Learn the most common technical indicators that forex traders and currency market analysts utilize to predict likely market ... Read Answer >>
  3. What types of accounts are available for forex trading?

    There are many different types of forex accounts available to the retail forex trader. Demo accounts are offered by forex ... Read Answer >>
  4. How is the value of a pip determined?

    Learn how the pip is used in the pricing of a currency pair in forex trading, and see how the foreign exchange market is ... Read Answer >>
  5. What am I buying and selling in the forex market?

    The forex market is the largest market in the world. According to the Triennial Central Bank Survey conducted by the Bank ... Read Answer >>
  6. Is scalping a viable forex trading strategy?

    Scalping in the forex market involves trading currencies based on a set of real-time analysis. The purpose of scalping is ... Read Answer >>

You May Also Like

Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  3. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  4. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  5. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  6. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
Trading Center