EUR/USD Fundamental Analysis – September 15, 2015 – Forecast

Analysis and Recommendations:  The EUR/USD surged to 1.1373 early in the session before sellers came in shortly after the European opening. The selling pressure was strong enough to drive the Forex pair lower the entire European session, eventually reaching a low of 1.1283.

Once again volume was below average as many of the major players sat on the sidelines ahead of the U.S. Federal Reserve’s two-day meeting September 16 – 17. Some traders say it’s 50/50 that the Fed will raise interest rates. Others say the market forces indicate a 25% chance.

Hawkish Fed members will cite the strong labor market especially average hourly earnings as the main reason for raising rates on September 17. Fed Vice Chair Stanley Fischer believes the central bank could normalize policy before long-term inflation reaches the Fed’s targeted goal of 2%.

The dovish Fed members will vote against a rate hike because they believe the global markets are too unstable to handle a rate hike at this time. They cite the weakness in China’s economy, stock market volatility and dovish central banks as three key reasons for refraining from a rate hike at this time. A vote against a rate hike in September will push it later in the year with December the most likely date since the Fed holds a press conference that month. 

The weak economic data from China over the week-end could help build the case for refraining from the first rate hike since 2006. China’s fixed-asset investment and industrial production missed expectations in August. According to the National Bureau of Statistics, industrial production posted a reading of 6.1% versus an estimate of 6.3%. Fixed Asset Investment came in at 10.9%. Traders were looking for a reading of 11.2%. Chinese retail sales were slightly better than the estimate at 10.8%. Investors had priced in a gain of 10.6%. 

The weaker data suggests further cooling in the economy that will likely lead to additional stimulus measures from the government. More stimulus from the government also puts pressure on Fed members to refrain from a rate hike on September 17. Because of the struggling Chinese economy and its impact on global economies, the FOMC is likely to signal that it will begin tightening soon, but it will pass on a rate hike in September.

Last week, the World Bank and the IMF expressed their reservations with a rate hike at this time. This is also likely to influence Fed members. World Bank chief economist Kaushik Basu told the Financial Times that the Federal Reserve would spark “panic and turmoil” in emerging markets if it decides to raise interest rates this week. He added that the Fed should hold off on a hike until the global economy is more stable. “I don’t think the Fed lift-off itself is going to create a major crisis but it will cause some immediate turbulence,” he was quoted as saying.

Christine Lagarde also cautioned the Fed that it shouldn’t rush its decision to raise interest rates and should move only when it is sure the decision is unlikely to be reversed later. “It (the Fed) should really do it for good, if I may say,” Lagarde said. “In other words, not give it a try and have to come back.” 

For Euro traders, the key economic reports this week are the September 15, German ZEW Economic Sentiment and ZEW Economic Sentiment. Both are expected to be below last month’s figures. German ZEW Economic Sentiment is expected to show a reading of 18.3, down from 25.0. ZEW Economic Sentiment is expected to be 42.1 versus last month’s 47.6 reading. These reports are leading indicators of economic health. 

Also on September 15, investors will get the opportunity to react to the latest U.S. retail sales figures. Core retail sales are expected to post a reading of 0.1%, down from the previous 0.4%. Retail sales are expected to come out at 0.4%, also down from the previous 0.6% reading. The Empire State Manufacturing Index could be the most volatile report this week. It is expected to be up 0.7 versus the previous -14.9. 

Wednesday’s month to month CPI report is expected to show a reading of -0.1%. Year over year Final CPI is expected to be 0.2%. Core CPI should come out at 0.1%, unchanged from the previous month. The Fed will have these figures when it starts its two-day meeting.

Before the Fed announcement on Thursday, the U.S. will report on building permits, housing starts and the Philly Fed Manufacturing Index. 

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.

Today’s economic releases:

            Date                      Time              Curr                               Event                                                           Forecast   Previous 

 

Government Bond Auctions 

Date      Time                  Country 

Sep 16 11:03 Sweden Holds bond auction 

Sep 16 11:30 Germany Eur 2bn 2.5% Aug 2046 Bund 

Sep 16 11:30 UK Auctions 2% 2025 Gilt 

Sep 17 10:30 Spain Auctions Bonos/Obligaciones 

Sep 17 10:50 France Auctions BTANs 

Sep 17 11:50 France Auctions OATi 

Sep 17 19:00 US Holds 10-year TIPS auction 

Sep 21 12:00 Belgium Auctions OLOs