EUR/USD Fundamental Analysis – September 30, 2015 – Forecast

Analysis and Recommendations:

The EUR/USD reversed earlier gains to trade at 1.1224 down 20 points as the greenback recovered after low inflation numbers for eurozone countries printed today.

News that other car manufacturers are now being investigated, since Volkswagen was found to have cheated US emissions tests, demand for the Euro flattened considerably. Should it emerge that other car companies did in fact follow suit, Germany’s automotive industry will be hard-hit. Serious economic issues in the currency bloc’s most influential nation will be detrimental for the Eurozone as a whole. Later on Tuesday afternoon will see German inflation data published. Given that German import prices contracted beyond expectations, inflation in the region is likely to remain close to negative territory.

Early indications from European survey evidence on the effects on activity are mixed, but the overall thrust of the data seems to be that the economy will show stable growth in the immediate period ahead, at around 0.4% quarter-over-quarter. As the European Central Bank has said, downside risks have increased. Inflation expectations seem to have taken a hit, with markets reducing their expectations of inflation not only in the short term but also for the medium term.

A significant downside risk to both growth and inflation prospects comes from the exchange rate. From the low point earlier in the year, the effective exchange rate of the euro has appreciated by about 9%, enough to reduce both growth and inflation by 0.4% points or so, on our reckoning. For the ECB, this is rather worrying. One cause of the stronger euro is that when the equity correction came in August, long equity positions funded in euros were run off. As people sold their equities, they repaid the euros that had been borrowed to fund the earlier purchases.

Then there’s the U.S. Federal Reserve. The Fed did exactly what BNP Paribas U.S. economics team had expected in September — nothing. The Federal Open Market Committee was the dog that did not bark and so dashed the ECB’s hopes that higher U.S. rates would mean the dollar would strengthen against 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 up to the data analysis and information in our weekly reports.

Today’s economic releases:

Only Lower Level Data Today

 

Upcoming Economic Events that you should be monitoring:

Wednesday, September 30, 2015

Government Bond Auctions

Date Time Country

Sep 28 11:30 Germany Eur 1.5bn 12M (Sep 2016) Bubills

Sep 29 11:10 Italy Auctions BTPs/CCTeus

Sep 30 11:03 Sweden Holds bond auction

Oct 01 10:30 Spain Auctions Bonos/Obligaciones

Oct 01 10:50 France Auctions OATs

Oct 01 11:30 UK 1.5% 2021 Gilt auction

Oct 06 11:10 Austria Holds RAGB bond sale

Oct 06 11:30 UK 4.5% 2034 Gilt auction

Oct 06 19:00 US Holds 3-year note auction

Oct 07 11:30 Germany Eur 4bn Aug 2025 Bund

Oct 07 16:30 Sweden Announces details of auction on 14 Aug

Oct 07 19:00 US Holds 10-year note auction

Oct 08 11:03 Sweden Holds I/L bond auction

Oct 08 17:30 Italy Announces details of BTP/CCTeu on 13 Oct

Oct 08 19:00 US Holds 30-year bond auction