EUR/USD Monthly Fundamental Forecast – November 2015

Outlook and Recommendation

The EUR/USD closed the month just at the 1.10 level after witnessing a 200 point fall after Mario Draghi said that the ECB would be adding more or extending its current stimulus program at its December meeting. The US dollar remains strong but fell of monthly highs after the Federal Reserve indicated it would be raising interest rates in December. Economic data at the end of the month were weak.

Uncertainty at financial markets has not decreased after the long awaited September meeting of the Fed. While markets were more or less prepared for an unchanged policy rate, the very dovish statement of Janet Yellen was a surprise. She said that the US economy is strong enough for a rate hike. However, due to uncertainties abroad, a tightening of financial conditions and a slightly lower inflation path, the Fed refrained from entering a tightening cycle in September. Analysts think, the Fed put itself into a difficult position and might be better off today if it had started the tightening cycle already earlier this year. Markets do not think that the situation in emerging markets will improve substantially over the next weeks, the news flow, however, should stabilize. We expect the first rate hike in December. A start of the hiking cycle only in 2016 bears the risk of inflationary pressures as monetary policy needs time to unfold its impact. Moreover, the presidential election is coming up in 2016. Our analysts do not expect the ECB to enlarge its asset purchase program this year as we think they will wait for the decision of the Fed in December. Should, however, the Fed not hike in December, the ECB will try to prevent a stronger Euro by implementing further measures. Our team thinks that the evolution of long-term interest rates until the end of the year will again be determined by the Fed. As we expect a hike in December and solid macroeconomic data out of the US and Europe, we believe yields will rise going forward. Elevated volatility should however prevail with the euro falling to 1.05 range.

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: