EUR/USD Fundamental Forecast – September 13, 2016

The EUR/USD staged a mini rally with a lack of data to trade at 1.1247 after taking a dramatic hit on Friday as the dollar rallied on Fed inspired buying after more FOMC members supported a rate increase at this month’s meeting. Traders are pricing in a 30 percent chance the Fed will raise rates this month, up from 24 percent a month ago, after Boston Fed President Eric Rosengren moved more firmly into the hawkish camp. Dallas Fed President Robert Kaplan also spoke Friday, saying that he still believes that data over the last several months have strengthened the case to raise rates, but the Fed can afford to be “patient and deliberate.”

Traders appear unconvinced that the economic data would warrant a move later this month. The Institute for Supply Management’s services gauge fell to a six-year low in August. That came after the ISM factory survey showed contraction in manufacturing. Government data released Sept. 2 signaled cooling in hiring, while a private report showed consumer sentiment at a four-month low.

US stocks tumbled on Friday and Asian shares today suffered their sharpest falls since June as investors were rattled by rising bond yields and talk the Fed might be serious about lifting US interest rates as early as next week.

German exports fell sharply in July, shrinking the overall trade surplus for the fourth consecutive month – something not seen since 1992 in the euro zone’s largest economy.

European Central Bank chief Mario Draghi appears to finally be embracing the inevitable – that QE cannot continue forever. In spite of a slowdown in economic activity as a result of Brexit, along with inflation consistently remaining below the central bank’s target of “below but close to 2 percent,” providing further stimulus in order to boost economic activity is more of an academic exercise than anything else at this point.

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Upcoming Economic Events that you should be monitoring:

 September 13, 2016

Government Bond Auctions

Date Time Country Auction

Sep 13 11:00 Netherlands Eur 2-3bn 0% Jan 2022 DSL

Sep 13 11:10 Italy Holds bond auction

Sep 14 11:05 Norway Holds bond auction

Sep 14 11:30 UK 0.125% 2046 I/L Gilt

Sep 14 11:30 Germany Eur 1bn 2.5% Jul 2044 Bund

Sep 15 10:30 Spain Holds bond auction

Sep 15 11:03 Sweden Holds I/L bond auction

Sep 15 11:50 France Holds bond auction