EUR/USD Weekly Fundamental Analysis, November 9 – November 13, 2015 Forecast

Weekly Analysis and Recommendations:  The EUR/USD finished sharply lower last week, driven by the possibility of fresh stimulus from the European Central Bank and a U.S. Federal Reserve interest rate hike in December.

The Euro was under pressure early last week after ECB President Mario Draghi reiterated in a speech that the central bank was poised to make more interest rate cuts and implement other forms of monetary policy easing, including expanding and extending its current 1.1 trillion Euro stimulus program.

It ended the week on a weak note after the U.S. posted stronger-than-expected jobs data. The U.S. Non-Farm Payrolls report for October showed the addition of 271,000 jobs, soundly beating estimates of about 179,000. The unemployment rate ticked lower to 5 percent, marking full-employment. Average hourly earnings increased 9 cents or 0.4%, for an annualized increase of 2.5 percent. This put it slightly above the Fed’s mandated inflation target of 2.0 percent.

The jobs data builds a strong case for a December interest rate hike and coupled with the ECB’s dovish talk, should continue to pressure the EUR/USD into the end of the year. There will be short-covering rallies due to position-squaring and reaction to oversold technical conditions, but for the most part, sellers are likely to be in control.

For the record, the EUR/USD closed at 1.0738, down 0.0264 or 2.40%. This put the Forex pair at its lowest level since April 24.

With the jobs report out of the way, the focus will shift towards the consumer. Friday’s retail sales report will be most important. Core retail sales are expected to recover from the previous reports -0.3%. Traders expect it to rise 0.4%. Retail Sales are estimated to show a 0.3% gain versus the previously reported 0.1%. 

Softer-than-expected retail sales figures will not necessarily take a December rate cut off the board, but it could give short-sellers a chance to lighten up positions, triggering a modest short-covering rally by the Euro against the dollar. 

Other important U.S. reports this week include JOLTS Job Openings on Thursday and Consumer Sentiment of Friday. 

Several Fed members are scheduled to speak next week, including William Dudley, James Bullard and Jeffrey Lacker, but the primary emphasis will be on Fed Chair Janet Yellen who is scheduled to give welcoming remarks at a Fed conference on Thursday.

ECB President Mario Draghi is scheduled to speak on November 11. He may reiterate the central bank’s plans to expand or extend stimulus. On November 13, the Euro Zone will release its latest flash GDP report. The last report showed growth of 0.4%. 

Forecast

With the release of the strong jobs report, there is about a 70% chance of a Fed rate hike in December. The divergence between the monetary policies of the Fed and the ECB should keep the pressure on the EUR/USD. However, oversold technical conditions may lead to periodic short-covering rallies. Additionally, weaker than expected U.S. economic data may also produce short-covering rallies. The possibility of a rate hike and the dovish ECB are likely to put a lid on any rallies, however.

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. 

Reports to Watch This Week: 

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