EUR/USD Weekly Fundamental Analysis, April 25 – April 29, 2016 -Forecast

The EUR/USD settled at 1.1231, down 0.0050 or -0.44% even though in his April 21 press conference, European Central Bank President Mario Draghi did not suggest an increase in stimulus measures any time soon.

On Friday, traders largely reacted to a worse than expected German purchasing managers’ index survey. This news may be an indication that the European economy is worsening and that negative rates are not working. The weak close for the Euro was its second straight weekly drop against the dollar.

The lower price action also suggests that if Euro Zone data continues to be weak, the central bank could ease further.

Last Thursday, the Euro finished in negative territory after the ECB held its key interest rates unchanged. Earlier that day, the ECB chose to hold interest rates steady, keeping its main refinancing rate unchanged at 0.0 percent; the marginal lending rate unchanged at 0.25 percent and the deposit facility rate unchanged at -0.4 percent.

In the decision, the ECB announced it had started to expand their monthly purchases to 80 billion Euros, and that it is focusing on the implementation of the non-standard measures decided at their last monetary policy meeting on March 10. This could be an indication that quantitative easing is coming.

During the press conference that followed the interest rate announcement, Draghi warned that Euro Zone inflation might turn negative again in coming months. Since the central bank undertook the measures it did in March, the broad financing conditions saw signs of improvement, the ECB said. Draghi also stressed in the conference that the central bank hadn’t talked about helicopter money.

The U.S. Federal Reserve will issue its interest rate decision and monetary policy statement on Wednesday after holding a two-day meeting.

The Fed is widely expected to leave interest rates unchanged with only 2.3 percent of traders looking for a rate hike. However, its monetary policy statement may contain language that boosts the possibility of a rate hike in June.

In its last statement, the central bank reduced the number of potential rate hikes from four to two, citing threats from global headwinds. Since these have failed to materialize, the Fed may hint at resuming its tightening cycle in June.

Any talk of rate hikes by the Fed is likely to pressure the EUR/USD even further.

We could see a volatile two-sided trade this week. Hawkish language from the Fed could drive the Euro lower against the U.S. Dollar, but the Euro could strengthen if weaker stocks drive investors into the safety of the Euro, or if technically oversold conditions encourage profit-taking or short-covering.

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 for the week:

Monday, April 25, 2016

AUD        ANZAC Day Holiday

NZD        ANZAC Day Holiday

Tuesday, April 26, 2016

Wednesday, April 27, 2016

Thursday, April 28, 2016

Friday, April 29, 2016

  JPY        Showa Day Holiday

Government Bond Auctions

Date Time       Country           Auction

Apr 25 N/A UK 2.5% July 2065 Gilt (Syndicated tap)

Apr 25 11:35 Germany Eur 1.5bn Apr 2017 Bubill

Apr 26 11:10 Italy Holds BTPei auction

Apr 26 19:00 US Holds 2-year note auction

Apr 27 11:03 Sweden Holds bond auction

Apr 27 11:10 Italy Holds CTZ auction

Apr 27 11:30 Germany Eur 1bn 2.5% Aug 2046 Bund

Apr 27 19:00 US 2-year FRN, 5-year note auctions

Apr 28 11:10 Italy Holds 5yr/10yr bond auctions

Apr 28 19:00 US Holds 7-year note auction