Economic releases from the European Union last week continued to weaken an already bleak EU economic sentiment. Not only did the latest German IFO expectations and German Manufacturing PMI dash hopes Germany was returning to economic consistency, but the latest EU Markit PMI elevated fears of stagnant economic growth within Europe.
Comments from ECB President Mario Draghi that he remains committed to using all tools at his disposal to stimulate growth encouraged investors to price in future action from the ECB. All in all, the EUR/USD declined by nearly 200 pips throughout the week and dropped to 1.26 for the first time in two years.
This Thursday, the latest ECB interest rate decision is announced and while I am not expecting the ECB to act again, Mario Draghi could use his press conference to send the EUR/USD lower with dovish comments. Also this week, a variety of EU inflation data is released and optimists will be hoping a lower valued EUR/USD may help raise CPI (Inflation) levels. However, the lower valued EUR/USD failed to help the EU Markit PMIs last week and if the CPI data shows a similar correlation, we can expect the euro bears to awake again.
Overall, the EU sentiment has remained bleak for months and the Federal Reserve concluding QE in October is only going to reiterate to investors that the Fed are moving closer to normalizing monetary policy, and strengthen attraction to the Greenback. As long as the fundamentals for this pair remain consistent and this Friday’s US NFP fails to raise alarm bells, the EUR/USD is on track to enter 1.25 by mid-October.
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