Fundamental Forecast for EUR/USD: Neutral
– French Republican primary results see Francois Fillon – the more mainstream candidate beat the National Front’s Marine Le Pen – won on Sunday, providing a boost for the Euro.
– Italian constitutional referendum next Sunday (December 4) looks increasingly likely to fail; the existential threat of a Euro-Zone break-up may soon be thrust back into the spotlight.
- EUR/USD looks increasingly likely to break consolidation streak to downside, setting up a move towards 0.9500 in 2017.
All things considered – it being a holiday week, resulting in markedly lower liquidity levels than normal across all markets, including forex – the Euro had a rocky week. While it was barely changed on balance, EUR/USD traded between roughly 1.0520 and 1.0660, an appetizer of the volatility that may be forthcoming. Over the coming days, a mix of economic data and political risk should be particularly prominent in driving EUR/USD.
The calendar provides an outlet for traders looking for more definable risk. On the Euro side, inflation data from Germany and the Euro-Zone for November are due out. With energy prices providing a nice tailwind (vis-à -vis a base effect), there might a slight bump higher in the year-over-year figures in the cards for both Germany and the broader Euro-Zone. A speech by European Central Bank President Mario Draghi in European Parliament on Monday should draw interest, as well as his speech in Madrid on Wednesday, as markets prepare for the ECB’s rate decision on December 8.
On the US Dollar’s side of the economic calendar, the November US Nonfarm Payrolls report will be in obvious focus on Friday. It’s important to understand that slower rates of headline NFP growth are expected with the unemployment rate below 5%, so the FOMC won’t be hesitant about raising rates at their December 14 meeting even if the headline NFP report came in around +150K. Over the past year, various Fed officials (including Fed Chair Janet Yellen) have estimated the breakeven pace of jobs growth is around +100-110K; the Atlanta Fed’s Job Calculator projects +120K per month are needed to keep the unemployment rate at or below 4.9% through October 2017.
