EUR/USD Fundamental Analysis – 24th April 2016

Fundamental Analysis tries to explain the movements of the market through economic events. Therefore, let us look at certain reasons that are significant for the EUR/USD pair.

ECB keeps monetary policy intact; faces sharp criticism from Germany

“We have a mandate to pursue price stability for the whole of the eurozone not only for Germany”
–  Mario Draghi, ECB President

The European Central Bank held its interest rates at record lows and kept the size of its bond-purchasing programme unchanged, allowing some time for fresh stimulus measures announced last month to affect the economy. The 25-member Governing Council maintained the benchmark rate at zero, the deposit rate at minus 0.4% and asset purchases at 80 billion euros month. ECB President Mario Draghi reiterated that there were still challenges ahead and there is a need to ensure that low inflation does not become entrenched, as the risks to the recovery remained “tilted to the downside”. Thus, the monetary policy in the bloc will stay loose, if not looser, in the future. Also, Draghi particularly highlighted emerging market slowdown, subdued public investment and a lack of structural reforms.

Additionally, Draghi robustly defended its cheap money policy against brutal a debate that has driven a wedge between the central bank and Germany, the Euro zone’s biggest economy. Criticism by politicians in Germany has intensified amid fears that the ECB could even start to hand out ‘helicopter money’ to citizens. Germans have a right to question the ECB’s actions, but the ECB’s independence should not be breached, Chancellor Angela Merkel said.

US jobless claims continue to fall, hitting 4-decade low

“The fact that the numbers continue to ratchet down suggests that labor demand is strong and a sign the labor market should continue to improve”
-TIAA Global Asset Management

The number of Americans applying for unemployment benefits unexpectedly declined last week, reaching its lowest level since 1973, suggesting a sharp slowdown in economic activity in the first quarter could be temporary. First-quarter gross domestic product growth estimates are currently as low as a 0.2% annualized rate. The economy expanded at a 1.4% rate in the fourth quarter. Initial jobless claims, a proxy for layoffs across the US, dropped by 6,000 to a seasonally adjusted 247,000 in the week ended April 16, according to the Labor Department. That was the lowest level for unemployment claims since the week of November 24, 1973. That also marked the 59th consecutive week that initial jobless claims remained below 300,000, the longest such streak in more than four decades. Employers created 215,000 jobs in March, whereas the unemployment rate edged up to 5%, but the rise partly reflected more workers entering the labour force.

Fed officials will likely consider the relative health of the labour market at next week’s policy meeting. However recently, policy makers have voiced their concerns about weakness in the global economy and are watching inflation readings and wage gains closely. A large majority of economists expect the Fed to hold its benchmark interest rate steady at the meeting.

So what to expect from the above?

The expansionary policies of Euro zone and the strong data from US, such as falling unemployment could lead to the strengthening of the US Dollar and weakening of the Euro. Therefore the pair is expected to have a long term downward trend.


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