EUR/USD Fundamental Forecast – February 5, 2016

Analysis and Recommendations:

The EUR/USD added another 57 points to trade at a 2016 high of 1.1162 as the US dollar continued to fall as the outlook for rate increases in 2016 have faded. European Central Bank chief Mario Draghi warned Thursday of the risk of acting “too late” to counter stubbornly low inflation in the euro area, in comments likely to fuel speculation that the ECB is preparing new stimulus moves soon.

“In a context of prolonged low inflation, monetary policy cannot be relaxed about a succession of supply shocks,” Draghi said in a lecture delivered at a conference organized by the German central bank, the Bundesbank.

“Adopting a wait-and-see attitude and extending the policy horizon brings with it risks: namely a lasting de-anchoring of expectations leading to persistently weaker inflation,” Draghi argued. “And if that were to happen, we would need a much more accommodative monetary policy to reverse it. Seen from that perspective, the risks of acting too late outweigh the risks of acting too early.”

The ECB has already slashed interest rates to historic lows, pumped unprecedented amounts of liquidity into the financial system and launched a massive bond purchase program known as quantitative easing or QE to try and kick-start inflation in the 19 countries that share the euro.

The U.S. dollar tumbled on increased expectations that the U.S. Federal Reserve will not raise interest rates as robustly as had been anticipated just weeks ago. According to Fed watchers, the probability of a further rate hike by December is now just 39 per cent.

“A steady stream of disappointing U.S. data this week … coupled with a steady drumbeat of dovish banter from Fed officials … have taken the wind out of the big dollar’s sails,” said BMO economist Sal Guatieri in a commentary. “Finally, some much-needed good news for Canadian snowbirds.”

FxEmpire provides in-depth analysis for each asset we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more up to the data analysis and information in our weekly reports, which covers the current week and are published by Sunday before the new week begins. Daily we share any new events, forecasts or analysis that affect the current day. To achieve a full accurate understanding it is important that you study all of our data and analysis as a whole.

Today’s economic releases:

 

Upcoming Economic Events that you should be monitoring:

Friday, February 5, 2016

Government Bond Auctions

Date Time and Country

Feb 04 11:50 France Holds bond auction

Feb 04 17:20 Sweden Details of I/L bond auction on Feb 11

Feb 08 16:20 Italy Details of bond auction

Feb 09 11:00 Netherlands Holds DSL auction

Feb 09 11:00 Austria Holds bond auction

Feb 09 11:30 Germany Holds I/L bond auction

Feb 09 11:30 UK 0.125% 2026 Gilt linker auction

Feb 09 n/a UK Details of Gilt auction on Feb 17

Feb 09 19:00 US Holds 3-year note auction

Feb 10 11:30 Germany Euro 5bn Mar 2018 Schatz

Feb 10 17:20 Sweden Details of bond auction on Feb 17

Feb 10 19:00 US Holds 10-year note auction

Feb 11 N/A Italy Euro 4-5bn 30-yr syndicated bond auction

Feb 11 11:03 Sweden Holds I/L bond auction

Feb 11 11:10 Italy Announces details of bond auction

Feb 11 11:30 UK 3.5% 2045 Gilt auction

Feb 11 19:00 US Holds 30-year bond auction

Feb 11 n/a US Details of 30-yr TIPS auction on Feb 18

Feb 12 11:10 France Details of bond auction on 18 Feb