EUR/USD Fundamental Forecast– September 1, 2016

The Euro was under pressure against the U.S. Dollar on Wednesday as investors increased speculative bets that the U.S. Federal Reserve would hike interest rates before the end of the year. The last report showed the EUR/USD at 1.1128, down 0.0013 or -0.12%.

The EUR/USD has been losing ground since last Friday, when Fed Chair Janet Yellen and Vice Chair Stanley Fischer made hawkish comments about the economy. Yellen said the economy had strengthened, but failed to convince investors a rate hike was imminent. Fischer said two rate hikes were a “possibility”.

Currently, market participants are pricing in close to a 25% chance of a September rate increase, compared with about 18% before Yellen’s Jackson Hole speech on Friday. The chances of a December rate hike have risen from 50% to 55%.

Today, the Euro Zone delivered flat economic data, despite massive amounts of stimulus from the European Central Bank. This includes the implementation of negative interest rates. Euro Zone Core CPI came in at 0.2%, slightly below the 0.3% estimate. The Euro Zone Unemployment Rate was 10.1%, in line with expectations. The low readings have investors discussing the possibility of fiscal action to stimulate the economy.

The EUR/USD weakened further after a lower opening after ADP released its latest Employment Change report for August. This report showed the private sector of the economy added 177K jobs. Traders were looking for a reading of 175K. Nonetheless, investors read the report as bearish. And as an indication that Friday’s Non-Farm Payrolls report would come in at 177K or better.

A strong jobs number on Friday will increase the odds of a Fed rate hike and could even mean that a September rate hike is an even stronger possibility.

In other news, Chicago PMI came in lower than expected at 51.5 versus the estimate of 54.0. This report could help put in a floor in the EUR/USD because it casts doubts about the strength of the U.S. economy. Pending Home Sales came in better than expected at 1.3%. This positive news may be strong enough to offset the negativity of the Chicago PMI report.

The jobs data is likely to weigh on the EUR/USD the most on Wednesday, but there still exists the possibility of a two-sided trade due to position-squaring ahead of Friday’s major U.S. jobs report.

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:

Thursday, September 1, 2016

Government Bond Auctions

Date/Time Country Type

Aug 31 11:05 Norway Holds bond auction

Aug 31 11:30 Germany Eur 4bn Sep 2018 Schatz

Sep 01 10:30 Spain Holds bond auction

Sep 01 11:30 UK Jul 2022 Gilt

Sep 01 11:50 France Holds bond auction