The Key EUR/USD Drivers for Weeks to Come

Kathy Lien
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Talking Points:

  • Renewed Importance of Fed Monetary Policy

  • Eurozone Growth in Focus This Week

  • The Case for a Lousy US NFP Report

With no major Eurozone or US economic reports released on Monday, the euro (EUR) held steady against the US dollar (USD). Since the beginning of September, we have seen significant euro gains driven largely by the disappointment in US fiscal and monetary policies.

Now, with a short-term resolution to the debt debacle, Fed monetary policy should become the leading EURUSD driver over the next two months, but EUR fundamentals will also take on increased importance as focus returns to relative growth and monetary policy.

See also: New US Risk Factors That Replace Debt and Politics

The European Central Bank (ECB) is not in any position to tighten monetary policy, but there's a lot of Eurozone data scheduled for release this week, and depending on the outcome of those reports, expectations for Eurozone growth could change as well.

The central bank is cautious, but there is a lot of hope that the region will benefit from the opportunity for renewed growth in both the US and China. We have already seen a significant pickup in investor confidence, as measured by the German ZEW survey, and this week, the latest PMI reports and the German IFO survey are scheduled for release. Economists are looking for mild but broad-based improvements.

If the US non-farm payrolls (NFP) report surprises to the downside and the PMI reports surprise to the upside, EURUSD could rise to fresh 2013 highs this week. Over the next 24 hours, US data will be the primary driver of EURUSD flows, but by Wednesday, that will change with the influx of Eurozone economic reports.

Swiss trade balance data is also due for release, and the country's surplus is expected to have increased significantly in the month of September.

By Kathy Lien of BK Asset Management

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