Yesterday (4/11), the pair EUR/USD recorded 3 consecutive days of losses, after the address of the President of the Federal Reserve (Fed) Janet Yellen and speeches by the Fed chairmans. Ending the session, the pair closed $1.08634, down 0.9% compared with the opening price $1.09615.
In the address before the Financial Services Committee of the House at 10 am at the Capitol Hill, Federal Reserve Chairman Janet Yellen sent message to raise interest rates in December, however, interest rates will only rise slowly to stimulate the US economic recovery. She optimistically indicated as the current situation include low unemployment, growth and inflation maintain prosperity, meaning the country is ready to act to tighten.
New York Fed President William Dudley also agreed with Ms. Yellen that the Fed was likely to tighten in the next meeting in December. Lael Brainard, Fed officials had expressed deep concerns about the global economic downturn may threaten the recovery in the US, but now also a little more optimistic.
The optimism statement from the Fed’s power trio reinforce market expectations. Bets on the Fed tightened in December increased 60% yesterday. The dollar peaked two months compared to other major currencies, causing the pair EUR/USD dropped to its lowest level since early August so far.
Meanwhile, according to Economic Bulletin, the European Central Bank (ECB) said spillover effected from China’s economic activity will likely decline only modest impact on total production domestic product (GDP) of the Euro zone area. Economic of euro zone is still recovering despite the turmoil in the emerging markets, with economic activity index of the Markit Economics predicted to grow 0.4% in Q4 this year. However, with inflation stuck at 0%, Mario Draghi ECB president was open to expanding the giant economic stimulus program (QE) worth $ 1.1 trillion Euro. Enhanced prospects of ECB stimulus causing further downward pressure on prices for the euro, causing the pair to fall further.
In addition, the number of industrial orders in Germany fell by 1.7% in October, continued to fall as much as 1.8% last month. Production activities of the leading European countries slowed also add downward pressure to the euro.
Now, the market will focus on the US economic data for clues about the Fed’s ability to raise interest rates this year. The Fed will have 6 weeks to assess the economic health before making the interest rate decision. Yesterday, reports on employment by ADP survey, US businesses added 182,000 new jobs in October, showed signs of steady improvement of the labor market. Official employment report released Tuesday by the government this week 6th is expected to create 182,000 jobs, according to economists surveyed by Bloomberg. The unemployment rate is forecast at 5%. Nonfarm payrolls tomorrow officially bring positive data, which will reinforce market expectations for Fed actions and drag the pair plummeted.
In such psychological waiting, the application for unemployment benefits in the US will attract investors’ attention, because this is also an important indicator of the health of current labor market. Along with that is data on nonfarm productivity and labor costs of US preliminary. Speech by Fed Chairman Dudley Williams will also affect the direction of the pair today.
Currently, at 2:18 pm GMT+7, the pair is trading at $1.08542, down 0.8% compared with the opening price at $1.08637.
Forecast: The pair EUR/USD is under pressure to go down, given the Fed raising interest rates outlook and ECB easing strengthening. In psychological waiting for official jobs report tomorrow, the pair will still tend to go down, but not in too large amplitude. Currently, prices are in the $1.08 gain support from month 5/2015. Today, EUR/USD is predicted to keep declining, and reach to $1.08000. However, some negative US economic data may support the pair moved up, which could reach $1.09500.