The EUR/USD, which broke out of its downtrend line, could not sustain the exchange rate highs. It is currently close to its support of 1.11, which might be tested in the new week.
The Euro to Dollar exchange rate today: +0.02pct at 1 EUR = 1.11595 USD, FX markets open.
The Euro to Pound Sterling exchange rate today: -0.04pct at 0.85773.
Last week started with Fed Governor Lael Brainard’s dovish comments.
She advocated keeping rates lower and cautioned against the risks from emerging markets and China.
The market’s expectations of a rate hike as early as September dropped from 21% before the speech to 15% on completion.
Inflation-Eurozone
The Eurozone inflation continued to languish at 0.2% for the second month in the running, according to data from Eurostat. For the whole of 2016, inflation has never ticked more than 0.3%.
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Latest Euro/US Dollar Exchange Rates
On Monday the US Dollar to Euro exchange rate (USD/EUR) converts at 0.896
The EUR to USD exchange rate converts at 1.115 today.
At time of writing the euro to pound exchange rate is quoted at 0.857.
FX markets see the euro vs swiss franc exchange rate converting at 1.093.
NB: the forex rates mentioned above, revised as of 19th Sep 2016, are inter-bank prices that will require a margin from your bank. Foreign exchange brokers can save up to 5% on international payments in comparison to the banks.
Notwithstanding, economists at HSBC believe that inflation will start its northward journey from September and reach 1% by the first quarter of 2017, as shown in the chart above.
However, they don’t see inflation reaching the ECB’s target of “close to, but below” 2%, which is likely to force the ECB into unleashing another round of Quantitative Easing.
“We still think therefore that the ECB will have no choice but to extend QE in one of the upcoming meetings in 2016. But they are also – by their own admission – increasingly aware that they are running out of tools to affect the real economy, and they will be hoping that governments will also do their part,” said Fabio Balboni of HSBC, reports Business Insider.
US consumer price index beats expectations
The US consumer price index rose 0.2%, whereas, the core CPI rose 0.3%. Both numbers beat economists’ expectations of a 0.1% and 0.2% rise. Though the Fed will be encouraged by the numbers, various other weak economic reports are unlikely to give it the confidence to hike on September 21.
“It’s still going to be a long haul to get to the Fed’s inflation target,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. “They’re likely to wait a bit longer” beyond next week, he said, reports Bloomberg.
US retail sales disappoint
The US consumer kept a tight grip on their purse strings in August, as sales at US retailers declined by 0.3%, against a 0.1% decline expected by economists surveyed by Bloomberg. After the July figures were revised to a rise of 0.1%, the latest reading was the first drop in five months.
FedWatch tool forecast
The market has more or less priced out any rate hike in September. The FedWatch tool predicts only a 12% probability of a September rate hike, however, the probability of a rate hike in December is high at 55%.
The economists at RBC put it nicely when they wrote that a rate hike in September by the Fed “would be the mother of all surprises,” reports The Wall Street Journal.
How to trade the EUR/USD next week?
The EUR/USD, which broke out of the downtrend line, could not sustain the highs. It is currently close to its support of 1.11, which might be tested in the coming week.
A break below the support will push the pair towards the lower levels of 1.104 and 1.095.
However, if the support holds, the pair will continue to trade within the range of 1.112 on the lower end and 1.136 on the higher end.
Unless the pair breaks down under the support or bounces off from it, the pair remains in a no trade zone.
Have you got any forex trading tips for the euro to dollar pair this week? Let us know via Twitter, handle @exchangeratesuk and we may well add your thoughts here!
Leading FED Studies Euro-Dollar Forex Analysis From Major Institutions
Nordea Bank’s Jonny Bo Jackobsen see the FED holding the interest rate this week:
“On the margin, the stronger-than-expected August CPI prints increase the risk of a Fed rate hike at next week’s FOMC meeting.”
“But with markets pricing in a probability of just 20% of a rate hike, we think the Fed doves will gain the upper hand, considering the central bank’s usual reluctance to surprise investors on the hawkish side.”
“Thus we still believe that the Fed remains on hold at next week’s FOMC meeting, which concludes on Wednesday.”
Scotibank’s Shaun Osborne suggests the recent moves in the euro to dollar rate could see the pair fall further:
“The broader technical position here remains little changed. EURUSD has weakened modestly on the day but recent range parameters remain intact.”
“After two tests, and rejections, of 1.1270 earlier this week, the EUR’s drop to the intervening low at 1.1220 sets up a potential short-term double top (implying scope for a push lower to 1.1170 on a break lower).”
“However, the market’s initial dip to the low 1.12 zone looks to be drawing decent support.”
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