CURRENCY ANALYSIS

Analysis of the Majors

25 Sep 2016

• USD (NEER) – The dollar opened with a moderate recovery from the lows hit in the wake of the FOMC. Data due out next week will be mixed, and could allow the dollar to consolidate, barring particular disappointments.

• However, data releases will be overshadowed by the numerous Fed speeches on the agenda, that will be useful in understanding which particular aspects the different FOMC participants will focus on in opting to vote for or against a rate hike in November rather than in December. The debate at Wednesday’s meeting was very intense.

• For what concerns data, the most important releases for the dollar will be those due out in the first week of October, with the ISM indices at the fore – considering last month’s disappointment – and the Employment Report – which was not negative, but provided mixed indications. The dollar will strengthen in view of a fed funds rate hike by the end of the year, although the bland upward path indicated by the Fed for next year will probably curb the upswing, leaving the US currency at levels below its 1Q highs.

• EUR – The euro pulled back from its post-FOMC highs at EUR/USD 1.1257, and is hovering close to EUR/USD 1.1200 again. In the near term, the exchange rate will be influenced not only by developments in the US, but also, and more than in other phases, by euro area data.

• The scenario outlined by the ECB at its latest meeting was not worse than the one drawn up in June, despite the fact that the economic data released in the meantime sent some signs of weakness. This should prompt the euro to react more to data, especially if disappointing. Today’s PMIs were better than expected for the manufacturing sector, but weaker for services. This sent the euro as high as EUR/USD 1.1219, well within the EUR/USD 1.11-1.12 range which has been prevailing for the last two weeks. Here, supports are at EUR/USD 1.1180-1.1150 and resistances at EUR/USD 1.1250-1.1280.

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