EURUSD Daily Fundamental Forecast – October 18, 2017

EURUSD Wednesday

The EURUSD pair continued to soften on Tuesday, with pressure coming from all sides as economic data out of the U.S continued to impress, with import prices jumping 0.7% and September industrial production rising by 0.3% in spite of the effects of Hurricanes Harvey and Irma through the month.

With macroeconomic data out of the U.S continuing to support a December rate hike by the FED, the Spanish government’s downgrade of economic growth projections for next year from 2.6% to 2.3%, attributed to the Catalan call for independence was another negative on the day.

In contrast to the recent stats out of the U.S, economic data out of the Eurozone disappointed on Tuesday, with Germany and the Eurozone’s ZEW Economic Conditions Indexes on the decline, with the Eurozone’s core inflation figures continuing to sit well short of the ECB’s objective.

EURUSD under Pressure as Geo-political Risk Weighs

EUR/USD daily chart, October 18, 2017
EUR/USD daily chart, October 18, 2017

While macroeconomic data out of the Eurozone has been largely positive in recent weeks, the Eurozone economy may begin to feel the pinch of rising geo-political risk.

We’ve seen the Spanish Government already downwardly revise growth forecasts for next year, which is not ideal when considering the fact that Spain is the Eurozone’s 4th largest economy, the downgrade is justified when considering Catalonia’s GDP contribution to the Spanish economy.

How things evolve in Spain in the coming days will provide the EUR with direction through the week, though it’s not just Spain that the markets will need to keep an eye on, with German Chancellor Merkel on a weaker footing at the coalition negotiating table following last weekend’s state elections and that’s before considering political events in Austria, as populist parties continue to disrupt the progress of the elite.

On the data front, there are no material stats out of the Eurozone today to provide direction for the EUR, while Draghi is scheduled to speak this morning, which could provide direction for the EUR should any references be made to the ECB’s asset purchase plan intentions going into the New Year. There had been disappointment at the start of the week following leaked reports on the ECB’s intentions, so anything more hawkish will be EUR positive.

Out of the U.S, the Beige Book and September housing sector data will be in focus, with FOMC voting members Kaplan and Dudley also scheduled to speak, any hawkish commentary on policy being Dollar positive. We’ve seen the Dollar find direction of late over speculation over who is in line to take the top job at the FED, with the market and Dollar favourite most likely to be Yellen. The U.S President is scheduled to meet with the current FED Chair tomorrow to discuss another term and noise over candidate progress will need to be factored in through the day.