EUR/USD Monthly Fundamental Forecast January 2016

Outlook and Recommendation

The EUR/USD  fell in the last few trading sessions of 2015 to end at 1.0855 down almost 10% for the year. The currency is expected to continue weaken into 2016. The November employment report clearly showed the “further improvement” in the labor market which Fed policymakers said was needed to raise key rates. Payrolls increased by 211’000 and there were upward revisions totaling 35000 to the two preceding months results. Equally so, the household survey was positive as well, showing a stable unemployment rate of 5.0% while also revealing a slight increase in the labor force participation. The setback of average hourly earnings to an annual change of 2.3% from 2.5% in October may be viewed as disappointing. Yet, much of this goes back to a strong base effect, as average hourly earnings had increased substantially in November of last year. To summarize, the latest report on the health of the labor market certainly solidifies the case for a Fed rate hike later this month and this view seems to be shared by market participants.

It is almost certain, that the waiting for the start of the first monetary policy tightening cycle in the US since 2004 ended on December 16. While a normalization of monetary policies is good news for the world economy, traders believe that the consequences are not yet fully included into prices on financial markets. Short-term, a rise in stock market volatility around the globe is a likely consequence of the Fed’s decision.

As traders continue to evaluate US data and look towards another increase in the Spring the divergence between the US and the ECB will become more evident and we can expect to see the greenback continue to gain on the euro.

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.

Major Economic Events Scheduled In January