EUR/USD Weekly Fundamental Analysis, October 19 – October 23, 2015 Forecast

Weekly Analysis and Recommendations:  The EUR/USD finished the week at 1.1348, down from its weekly high at 1.1494 and 0.0011 or 0.10% lower for the week. The Forex pair began the week in a strong position as buyers continued to react to expectations of a delay in the next Fed rate hike. 

The Forex pair began to weaken late in the week on the notion that the Federal Reserve might raise interest rates later this year and on fresh thoughts that the European Central Bank may provide more stimulus to help the Euro Zone economy. 

The EUR/USD hit a seven-week high before the selling pressure began. It was triggered by the news that annual U.S. core inflation picked up more than forecast in September to 2 percent. Adding to the losses was the news that Euro Zone inflation year-over-year price growth turned negative last month. That raised expectations the European Central Bank would increase or extend is quantitative easing program under which it plans to buy 1.1 trillion Euros of bonds. 

Additionally, the EUR/USD lost ground after ECB policymaker Ewald Nowotny said that it was now “obvious” the bank must do more to stimulate the Euro Zone economy. 

Recent data showing the Euro Zone economy is slowing and the current strength in the Euro raises pressure on the ECB to follow-through on its promise to expand or extend its trillion-Euro plus asset repurchase program if needed. 

“We’re clearly missing our target,” ECB Governing Council member Nowotny said on Thursday, “The ECB is using monetary policy instruments available but in my view it’s quite obvious that…additional sets of instruments are necessary.” 

“These include structural measures…but also on the demand side of the economy and also on the institutional factors of the economy,” Nowotny said. His statements suggest that the ECB’s wait-and-see approach may be insufficient. 

The main event this week will be the European Central Bank meeting on Thursday, October 22. No change in monetary policy is expected. However, with consumer inflation trending lower, there may be talk of additional stimulus measures. In addition, ECB President Mario Draghi may try to talk down the Euro before the committee makes a decision about extending or expanding stimulus. 

Also on tap this week are several Euro Zone-related Purchasing Managers reports. Flash Manufacturing PMI is expected to show a reading of 51.8, down from 52.0, but closer to the 50.0 level. A number below 50 will indicate a contraction. Flash Services PMI is expected to show a reading of 53.6, down slightly from 53.7. 

The U.S. reports primarily on housing this week. Several Fed members will give speeches and interviews with Fed Chair Janet Yellen scheduled for Tuesday, October 20. Investors will be looking for clues as to the timing of the next Fed rate hike. 

If the ECB leaves its stimulus plan intact and the PMIs do not come in below expectations then the Euro could catch a bid and rally. Any rally could be limited however, if Draghi decides he’s seen enough and decides to try to talk down the Euro. 

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. 

Reports to Watch This Week: 

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