EUR/USD Fundamental Analysis – Forecast for the week of August 15, 2016

The EUR/USD bounced about this week but made little headway and remains neutral in the coming week. This week traders will look at Eurozone inflation but most traders in Europe are on holiday along with most banks and government officials. There is a lack of from the US also this week. The pair is trading at 1.1161 moving into the new week.

“The U.S. retail sales data in particular is causing the dollar to weaken,” said Nick Bennenbroek, head of currency strategy at Wells Fargo Securities in New York, adding that “producer prices are also signaling limited inflation.”

A third report on Friday showed consumer sentiment stable in early August, though households’ views on income softened a bit. A fourth report showed businesses made significant progress in June in reducing an inventory overhang that has weighed on economic growth since the second quarter of 2015.

The dollar had rallied last Friday on data showing employers added more jobs than expected in July, raising expectations the Federal Reserve will raise U.S. interest rates this year.

It gave up those gains this week, however, as investors see a rate hike in September as a long shot and with the Fed’s December meeting still far away.

The Fed will release minutes from its July meeting next Wednesday, with the focus then likely to turn to Chair Janet Yellen’s speech at the Fed’s Jackson Hole symposium on Aug. 26.

German industrial production and second quarter GDP numbers beat expectations, helping the euro extend its gains on Friday. Of course, the softer U.S. retail sales report also helped.  However, traders believe that gains will be capped near 1.1250 as the Eurozone has its own banking sector troubles.  In the coming week we have the German ZEW survey, the “ECB minutes,” current account, CPI and trade balance scheduled for release.

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