EUR/USD Monthly Fundamental Forecast – February 2016

Outlook and Recommendation

The EUR/USD spent the month on a roller coaster ride with the Federal Reserve and the ECB being the main focus of the markets. The euro closed at 1.0833 seeing a small decline for the month of 0.25%.

Traders will closely monitor the monthly payroll data due on Friday as some guidance for the Fed meeting in March.  he Fed raised rates in December for the first time in nearly a decade citing in particular a strong labor market.

Also due out next week is a report on personal income and outlays. This is also a key inflation indicator as it sheds light on how much Americans are making and spending. If those numbers are rising than so will inflation. The report is due out Monday.

Also due out Monday is ISM’s Manufacturing Index. The manufacturing sector has been hammered in recent months by weakening demand in global markets and a strong dollar that has made exports more expensive. January motor vehicle sales are due out Tuesday and analysts believe the data will show another strong month for car sales.

Of notable concern was a drop-off in consumer spending growth to 2.2% in the fourth quarter, down from 3% in the prior quarter. Analysts had hoped the dramatic decline in oil prices in the latter half of 2015 would put more money in consumers’ pockets, allowing them to spend more freely on consumer goods. Consumer spending, after all, represents nearly 70% of overall GDP.

The euro currency has continued its slide against the U.S. dollar so far in 2016, and in recent weeks some major banks on both sides of the Atlantic predicting parity for the two currencies in the coming months.

But while weakness for the euro has been one of the main factors behind Italy’s recent economic stability, economists say continued weakness would not be all good news for Italy.

In recent days, New York-based Goldman Sachs adjusted its forecasts for the euro’s value compared to the dollar, predicting on January 22 it will cost less than a dollar to buy a euro by the end of this year. In Europe, German banking giant Commerzbank predicted the two currencies would have the same value by the end of the year.

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.

Upcoming Economic Events that you should be monitoring: