EUR/USD Fundamental Analysis March 6, 2014 Forecast
Analysis and Recommendations:
The EUR/USD eased by 7 points to trade at 1.3735 ahead of tomorrow’s central bank meeting. At the February ECB meeting, policy was kept unchanged. During the press conference President Draghi said that there had been a broad discussion that focused on the need for additional information because of the present uncertainty. He announced that in March the ECB staff projections would include forecasts to 2016, a far earlier public release of two year ahead forecasts than previously. This suggests that the 2016 inflation projection will be a crucial element in the ECB deliberations on Thursday. GDP data met expectations today.
After the G‐20 meeting, Mr. Draghi further emphasized the importance of these new projections, saying the council will have the full set of information needed for deciding whether to act or not by its next ECB council meeting at March 6, including the staff forecasts for 2016”
February HICP stabilized at 0.8% Y/Y, while core HICP rose to 1% Y/Y from 0.8% Y/Y previously. Markets, expected headline HICP to have dropped to 0.7/0.6% Y/Y and core inflation to have stabilized at 0.8% following the release of the national inflation reports of Germany, Italy, Spain and Belgium. Inflation in these countries was all lower in Y/Y terms. This suggests that the French inflation, not yet released, has risen substantially from 0.6% Y/Y in January. The increase in VAT introduced in France in January had not impacted French inflation in January (0.6% Y/Y), but might have done so in February.
Stocks across Europe recovered slightly yesterday following Monday’s heavy selloffs as markets responded positively to Russian President Vladimir Putin’s assertion that his country “will not go to war with the Ukrainian people”. The controversial Russian leader attempted to ease tensions in the region and play down fears that a new ‘Cold War’ could break out in the former Soviet Union. Putin’s diplomatic stance was seen as optimistic for the single currency because it did nothing to suggest that Russia is considering cutting off its oil supply lines to Western Europe.
There were no significant US data releases yesterday, leaving ‘cable’ traders to mull over the latest UK Construction Purchasing Managers Index. Despite the slide in the headline rate, from 64.6 to 62.6, the report featured multi-decade highs in civil engineering activity, which was seen to portend well for future Construction output.
US ADP Employment Change data out this afternoon could have an impact on Fed taper bets. However, the correlation between the ADP report and the more highly regarded Non-farm Payrolls figure has broken down in recent months, which could reduce volatility levels following the release. Today’s release indicated a lower than expected new jobs print.
Analysis and Recommendations:
The EUR/USD eased by 7 points to trade at 1.3735 ahead of tomorrow’s central bank meeting. At the February ECB meeting, policy was kept unchanged. During the press conference President Draghi said that there had been a broad discussion that focused on the need for additional information because of the present uncertainty. He announced that in March the ECB staff projections would include forecasts to 2016, a far earlier public release of two year ahead forecasts than previously. This suggests that the 2016 inflation projection will be a crucial element in the ECB deliberations on Thursday. GDP data met expectations today.
After the G‐20 meeting, Mr. Draghi further emphasized the importance of these new projections, saying the council will have the full set of information needed for deciding whether to act or not by its next ECB council meeting at March 6, including the staff forecasts for 2016”
February HICP stabilized at 0.8% Y/Y, while core HICP rose to 1% Y/Y from 0.8% Y/Y previously. Markets, expected headline HICP to have dropped to 0.7/0.6% Y/Y and core inflation to have stabilized at 0.8% following the release of the national inflation reports of Germany, Italy, Spain and Belgium. Inflation in these countries was all lower in Y/Y terms. This suggests that the French inflation, not yet released, has risen substantially from 0.6% Y/Y in January. The increase in VAT introduced in France in January had not impacted French inflation in January (0.6% Y/Y), but might have done so in February.
Stocks across Europe recovered slightly yesterday following Monday’s heavy selloffs as markets responded positively to Russian President Vladimir Putin’s assertion that his country “will not go to war with the Ukrainian people”. The controversial Russian leader attempted to ease tensions in the region and play down fears that a new ‘Cold War’ could break out in the former Soviet Union. Putin’s diplomatic stance was seen as optimistic for the single currency because it did nothing to suggest that Russia is considering cutting off its oil supply lines to Western Europe.
There were no significant US data releases yesterday, leaving ‘cable’ traders to mull over the latest UK Construction Purchasing Managers Index. Despite the slide in the headline rate, from 64.6 to 62.6, the report featured multi-decade highs in civil engineering activity, which was seen to portend well for future Construction output.
US ADP Employment Change data out this afternoon could have an impact on Fed taper bets. However, the correlation between the ADP report and the more highly regarded Non-farm Payrolls figure has broken down in recent months, which could reduce volatility levels following the release. Today’s release indicated a lower than expected new jobs print.