EUR/USD Fundamental Forecast – September 6, 2016

The EUR/USD gained 17 points as the greenback eased on the US holiday and disappointment over Friday’s jobs report. The euro is trading at 1.1172 well below its 1.12 average level. Disappointing PMI data die little to weigh on the euro. Both the composite and services PMI report missed expectations and printed lower than the previous month. Data from the Eurozone reported softer, with both its Services PMI and Retail Sales seen falling a tad in August. Note the G20 meeting in China which would appear to be pressuring the UK for a soft Brexit to maintain trade.

Investors interpreting Friday’s US Jobs data as being inconclusive and insufficient to convince the Fed that a US rate hike is warranted this month. Traders clearly like the idea of cheap money for longer, even if only for a few more months, as well as a positive China PMI Services figure and chat from the G20 suggesting pressure on the UK to opt for a soft-Brexit to avoid jeopardizing the strength of existing trade relations.

The headline non-farm payrolls report did nothing to boost hopes of a rate hike in 2016 from the Federal Reserve, while unemployment remained unchanged and wage growth weakened further-than-expected.

This weakened the euro because a stronger US Dollar, caused by an interest rate hike, would be highly advantageous for the Eurozone. The inverse correlation between EUR and USD would see the Euro pressured lower as the US Dollar advanced, aiding the European Central Bank (ECB) in their quest to boost Eurozone inflation. Lowering the purchasing power of the Euro has been a long-term goal for the ECB and, with suggestions that its choice of remaining policy tools is becoming limited, an external event weakening the common currency would prevent the Governing Council from having to unleash yet more easing measures.

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Upcoming Economic Events that you should be monitoring:

 September 6, 2016

Government Bond Auctions

Date Time Country Auction

Sep 06 11:00 Austria Holds bond auction

Sep 06 11:30 UK 1.5% 2026 Gilt

Sep 06 11:30 Germany Holds I/L bond auction

Sep 07 10:30 Denmark Holds bond auction

Sep 07 11:03 Sweden Holds bond auction

Sep 07 11:30 Germany Eur 5bn 0% Aug 2026 Bund

Sep 08 11:00 Ireland Holds bond auction

Sep 08 17:20 Italy Announces details of bond auction