EUR/USD Fundamental Forecast – August 22. 2016

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Published: Aug 19, 2016, 11:38 UTC

The EUR/USD gave back some of yesterday’s gains as the greenback rebounded from a two-month low. The euro is trading at 1.1324 down by 29 points after

EUR/USD Fundamental Forecast – August 22. 2016

The EUR/USD gave back some of yesterday’s gains as the greenback rebounded from a two-month low. The euro is trading at 1.1324 down by 29 points after touching its highest level in months. The greenback wallowed close to eight-week lows against the euro on Friday, poised for weekly losses, after minutes of the U.S. Federal Reserve’s July meeting revealed central bank policymakers were in no hurry to hike rates. Fed officials agree that more economic data is needed before raising interest rates, although they were generally upbeat about the U.S. economic outlook and labour market.

New York Fed President William Dudley said strong employment and a long-awaited return of middle-wage jobs suggest the labour market is tightening and the broader U.S. economy is on track, and earlier this week, he said it was “possible” for the central bank to hike rates at the Sept. 20-21 meeting.

Data on Thursday showed the number of Americans filing for unemployment benefits dropped more than expected last week.

Despite improving labour conditions, economists see the December meeting as the most likely time for a rate increase, after the U.S. presidential election in November, according to a Reuters poll last week.

The currency’s resilience comes as the spread between U.S. and European bond yields has widened in favor of the U.S. in recent weeks. This is unusual: Market strategists widely cite yield spreads as one of the most reliable mechanisms for driving movements in exchange rates. But it hasn’t translated into a stronger pound, the UBS team noted.

UBS is basing their outlook for the euro on two key assumptions: One is that the euro remains significantly undervalued—UBS believes fair value would be $1.25. And an economic catch up in the Eurozone will eventually push its currency closer to this desired level.

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Monday, August 22, 2016

Country	Name	Volatility	Previous
EUR	Markit Services PMI	2	54.4
EUR	Markit Manufacturing PMI	2	53.8
EUR	Markit PMI Composite	2	55.3
EUR	Markit Services PMI	2	52.9
EUR	Markit Manufacturing PMI	2	52
EUR	Markit PMI Composite	2	53.2
USD	Markit Manufacturing PMI	2	52.9
USD	Markit Services PMI	2	51.4
USD	Markit PMI Composite	2	51.8
GBP	Gfk Consumer Confidence	2	-12
GBP	Inflation Report Hearings	3
USD	Durable Goods Orders CORE	2	-0.5
USD	Durable Goods Orders	2	-4
USD	New Home Sales (MoM)	2	0.592
USD	New Home Sales Change (MoM)	2	3.5