EUR/USD Fundamental Analysis – August 25, 2015 –Forecast

Analysis and Recommendations:

The EUR/USD soared 130 points on weakness in the US dollar and safe haven trades as investors decided to plow money from equities and commodities into the euro. The pair is trading at 1.1514. Capital markets continue to see red as risk aversion flows have switched into a higher gear; worries over a China slowdown, FOMC policy uncertainty, and disinflationary macro environment continue to weigh on investor risk sentiment.

With China’s Shanghai Composite plummeting close to-12% last week, dealers were anticipating an aggressive easing response from Chinese officials over the weekend, to stem the negative tide, by reducing the reserve-requirement ratio (RRR) and freeing up over $100 billion for loans. The recent yuan manipulation by authorities has only managed to squeeze yuan funds out of the domestic market and heightened capital flight concerns.

Analysts attributed the strong performance to waning fears about European economies, with one saying the euro was demonstrating “safe-haven” qualities.

Senior foreign exchange strategist at Rabobank, Jane Foley, said that shorts on the euro (bets that the currency will weaken) had been slashed of late. “It (the euro) has certainly been behaving with safe haven qualities,” Foley told CNBC.

“The market has been cutting these massive euro shorts that they built up from July of last year and all the way into March. And those shorts are around about half of the size they were in March,” she later added.

The search for “safe havens” could be boosted on Monday by the rout in stocks, as investors steer clear of risk assets due to fears about the health of the Chinese economy and the upcoming U.S. Federal Reserve meeting.

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 up to the data analysis and information in our weekly reports.

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Tuesday, August 25, 2015