EUR/USD Fundamental Forecast– May 19, 2016

EUR/USD investors showed little reaction to the latest Euro Zone consumer inflation figures, released earlier in the session. The Forex pair closed at 1.1267, down 0.0044 or -0.39%. Euro Zone CPI y/y and Euro Zone Core CPI y/y came in as expected at 0.7% and -0.2% respectively.

The primary focus today will be on whether the U.S. economy has heated up enough to warrant an interest rate hike sooner than expected.

The current selling pressure was ignited on Tuesday after U.S. consumer prices recorded their biggest increase in more than three years in April as gasoline prices and rents rose, while other data showed housing starts and industrial production rebounded strongly, adding to the case for an early rate hike.

U.S. interest rate futures moved to price in a 70 – 80 percent chance of a rate hike by December, with a 50 percent chance of a move priced in by September. The chance of a hike in June was around 12 percent, up from around 5 percent before the inflation data was released.

Hawkish comments from Atlanta Fed President Dennis Lockhart and San Francisco Fed President John Williams also helped underpin the dollar against the Euro.

Today’s key news event that should determine the direction of the EUR/USD into the close will be the Minutes of the Federal Reserve Open Market Committee’s April 26-27 meeting, due out at 18:00 GMT. The minutes will shed more light this week on the risks of either raising interest rates amid global uncertainty or leaving them on hold as the U.S. economic outlook improves.

Several regional Fed presidents said last week that a move could be possible in June or July, though there’s been no recent public comment from Chair Janet Yellen or her number two, Stanley Fischer.

Look for the return of volatility with the release of the Fed minutes. Dovish minutes will likely support the EUR/USD. Hawkish minutes should encourage more selling.

FxEmpire provides in-depth analysis for each asset 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, which covers the current week and are published by Sunday before the new week begins. Daily we share any new events, forecasts or analysis that affect the current day. To achieve a full accurate understanding it is important that you study all of our data and analysis as a whole.

Today’s economic releases:

Upcoming Economic Events that you should be monitoring:

Thursday, May 19, 2016

Government Bond Auctions

Date Time       Country           Auction

May 18 11:30 Germany Eur 4bn Feb 2026 Bund

May 18 17:20 Sweden Announces details of bond auction on May 25

May 19 10:30 Spain Holds bond auction

May 19 11:03 Sweden Hold bond auction

May 19 11:50 France Holds bond auction

May 20 11:03 Sweden Sek 1.992bn 0.5% Jun 2017 I/L bond