EUR/USD Weekly Fundamental Analysis,October 13-17, 2014 Forecast

Weekly Analysis and Recommendation:

The EUR/USD tumbled as the markets closed to trade at 1.2629 as the US dollar gained momentum and comments from Mario Draghi talked down the currency.  The dollar gained for a second day after Wednesdays dip, erasing its decline since minutes of the Federal Reserve’s most recent meeting showed policy makers are concerned the U.S. economy may be at risk from a worldwide slowdown.

The U.S. currency rose against most of its 31 major peers. The yen strengthened this week against the euro as European Central Bank President Mario Draghi said there were indications the region’s economy is losing momentum, boosting demand for haven assets. Australia’s dollar fell for after a report showed home loans unexpectedly dropped. A measure of the dollar’s momentum, known as the seven-week relative strength indicator, rose as high as 96.6 at the end of last month, well above the 70 level that most traders view as a signal the currency’s move higher is ready to exhaust itself and reverse lower. The measure was 63 today.

The currency gained the past two days as traders reassessed minutes from the latest Fed meeting. A number of Federal Open Market Committee participants said the U.S. expansion “might be slower than they expected if foreign economic growth came in weaker than anticipated,” according to minutes of the Sept. 16-17 meeting on Oct. 8.

The ECB’s latest staff projections take account of a potential weakening in the euro against the dollar, which could alone lift inflation by 0.2-0.3 percentage points in 2015 and 2016. The bank expects inflation to average 0.6 percent in 2014, before ticking up to 1.1 percent in 2015 and 1.4 percent in 2016 though lower oil prices could scupper those rises.

Borrowing costs for the peripheral euro zone countries, many of which suffered badly during the bloc’s debt crisis, have fallen over the past two years following Draghi’s promise to do whatever it takes to save the euro. This has made investors more comfortable with riskier assets from the likes of Italy and Spain.  Europe is sliding towards a possible triple-dip recession and no-one seems to be able to decide what to do about it. Now, to be fair, this episode doesn’t have the same level of fear as the 2008 financial crisis or the subsequent euro malaise.

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 recent analysis and information in our weekly reports and we provide daily updates and outlooks.

Historical: From 2011 to Present

Highest: 1.4577 USD on Jul 03, 2011

Average: 1.3165 USD over this period.

Lowest: 1.2041 USD on Jul 24, 2012

 

Upcoming Major Economic Events for the week of Oct 13-17, 2014