EUR/USD Monthly Fundamental Forecast – April 2016

The EUR/USD closed the month near its highest point after inflation data jumped helping support the currency. The US dollar weakened after Janet Yellen’s speech at the end of the month pushing the euro to 1.1385 after climbing above the 1.14 level. The pair gained 4.76% all at the last days of the month. The euro is expected to continue its decline after the April FOMC meeting.

Eurozone consumer prices continued to fall in March but at a slightly slower pace than in February, data showed Thursday, despite the European Central Bank`s massive economic stimulus program.

The Eurostat statistics agency said the inflation rate in March was a negative 0.1 percent, compared with minus 0.2 percent in February while in January, prices rose 0.3 percent.

The ECB has been battling ultra-low inflation for years and unveiled an unexpectedly big stimulus package this month, cutting rates deeper into negative territory, expanding monthly asset buys by a third and offering free loans to banks.

Core inflation, a figure closely watched to gauge underlying trends, picked up to 0.9 percent from 0.8 percent, broadly in line with its recent trend and with expectations, alleviating some fears that low energy prices are feeding into the cost of other goods and services.

The ECB especially fears these so-called second-round deflationary effects from falling crude prices as they could lead to low price growth becoming entrenched.

Still, inflation remains far below the ECB’s target of nearly 2 percent and is not expected to return to target over the next three years. This indicates the central bank will have to keep rates exceptionally low and keep the door open to even more stimulus.

Indeed, the ECB expects inflation to average just 0.1 percent this year before a pickup in 2017. But the forecasts could prove overly pessimistic, analysts say, as the bank assumed Brent crude prices of $34.9 for the year, more than 10 percent below the prevailing level.

FxEmpire provides in-depth analysis for each currency and commodity 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 recent analysis and information in our weekly reports and we provide daily updates and outlooks.

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