EUR/USD: There are still many clouds ahead of our EUR/USD forecast - Commerzbank

In recent weeks, the meetings have mainly focused on questions of timing. The main focus has been on the US government shutdown and when it might end. However, overnight, there were further glimmers of hope when a procedural vote in the Senate achieved the necessary majority of 60 to 40, with some Democrats voting with the Republicans. While there are certainly still some pitfalls, the likelihood of the longest US shutdown in history ending in the coming days is increasing, Commerzbank's FX analyst Michael Pfister notes.

US shutdown nears end, but USD risks loom

"However, this raises some interesting follow-up questions for the US Dollar (USD). The USD has benefited in recent weeks because there has been no significant US economic data. The absence of data also meant the absence of negative data that would have indicated a slowdown in the economy. We are often asked when this could change again, now that the shutdown is coming to an end."

"Firstly, it will probably take a while for the data to become reliable again. For example, roughly 40% of the components in the inflation figures published during the shutdown were imputed, meaning that no actual values were available for them and the price increases were estimated instead. This does not necessarily mean that these estimates were incorrect, but simply that the probability of inaccurate values increases. The situation is not much better for labour market figures. Our economists recently emphasised that data collection was suspended during the shutdown, so the initial figures are also likely to be less reliable."

"However, our expectation of a weaker US dollar is primarily based on Donald Trump's attacks on the Fed's independence and his demands for lower interest rates. Although there are two possible dates to consider - the hearing of arguments in the Lisa Cook case before the Supreme Court in January, and the appointment of a new Fed chair in May - it largely depends on Trump's erratic nature. Basically, everything hinges on his propensity for making comments on social media. These are anything but easy to predict. Accordingly, unfortunately, it remains difficult to pinpoint a more precise time for a sustained upward movement in EUR/USD."