Market participants are still digesting a handful of economic indicators and geopolitical themes. In summary, the EUR/USD currency pair will likely remain relatively flat near the 1.1700 mark. Our analysts are forecasting a possible temporary move to the 1.1630/50 range later this week. That change will largely be driven by continued evolution in the eurozone and US economies. No bogeyman dominates Capitol Hill’s imagination like military strength. There are a host of other factors set to shape the euro-dollar exchange rate in coming weeks.
As the new trading week rolls on, traders will be looking ahead to the next U.S. inflation indicators. The Euro CPI release in mid-August will be the most influential data point for EUR/USD. Today’s dollar bear trend to actually be the prevailing impression of the markets. This trend can give support to the euro in the short term.
Economic Indicators and Their Impact
That EUR/USD stability around 1.1700 is a microcosm of the overall sense in the foreign exchange market. The potential for fluctuations certainly exists given a wide array of competing economic factors. Look out for a move down to 1.1630/50 later this week. This adjustment may be spurred on by recently released — and positive — data points, even including upward revisions to U.S. jobs numbers. This kind of data usually sends shockwaves through the forex markets, affecting trader sentiment and position-taking.
The singular focus on military strength will miss other key themes that determine whether a currency should be valued more or less. Yet geopolitical factors continue to fuel short term reactions. Economic fundamentals—including indicators like inflation and labor market participation—play a huge role in driving longer-term trends.
Traders are already closely watching the next rate meeting for another indication of the Bank of England’s direction. EUR/USD’s direct impact may be more limited. How well the sterling does against the euro can have an indirect but significant effect on EUR/GBP dynamics. Analysts predict these dynamics to eventually rest around 0.87 at year-end. This would have the potential to produce second-order impacts on a euro-dollar relationship as market participants seek to alter their strategies in reaction to cross-currency shifts.
U.S. Inflation and Market Reactions
August CPI will be a dollar game changer To show how powerful this release can be, we are going to look at the effect it has on the EUR/USD exchange rate. Inflation data is the most consequential information for monetary policy. Even a surprising number either way would move the markets dramatically. Alternatively, if inflation comes in even hotter than anticipated, that could boost the dollar. Such a move might drive the EUR/USD below that pair’s recent trading range.
If inflation remains subdued, that would certainly reinforce the dollar bear trend. This would only strengthen the euro’s upward pressure on the dollar. Market analysts foresee the DXY index remaining robust at 98.00. Any new changes in inflation data might shake this new status quo.
In addition to that, the frequent revision of U.S. jobs data adds a third complicating variable that may impact EUR/USD trading in particular. Employment figures have long served as a prized political barometer of economic savvy. They could affect investor expectations regarding the Fed’s future interest rate increases.
Geopolitical Factors and European Economic Landscape
The eurozone data calendar seems relatively quiet as we head into the next European Central Bank (ECB) meeting. If maintained, this calmness could help prevent major EUR/USD volatility for the time being. Uncertainties surrounding French politics have led to an increase in the OAT:Bund 10-year government spread, settling above 80 basis points. This is a measure of rising fears over political risk inside France and what that could mean for the stability of the eurozone economy.
And the Central Bank of Turkey continues to fight an uphill battle. They have been trying to manage these outflows proactively before the big event risk on September 15. Geopolitical concerns are sure to send ripples through broader market sentiment. As speculators and traders adjust their risk exposures based on changing political fortunes, the EUR/USD can be affected indirectly.
Recently, U.S. equities have been on a tear due in large part to strong earnings surprises from bellwethers such as Oracle. This strong corporate performance would further support the dollar in otherwise risk-on environments. This dynamic is still tenuous, and it may change as new economic data comes in.