EUR USD Weekly Forecast 04-08 July 2016.

Quo Vadis Europe? After Britons vote to leave, further economical prospectus for both countries will much depend on forthcoming split-negotiations that should start soon after UK officially invoke Article 50 of Lisbon`s Treaty. ECB Council member Coeure commented during previous week that Brexit will have negative consequences on Euro Zone growth but the extent of it cannot be fully estimated at this moment. This implies also that any changes in ECB monetary policy cannot be currently foreseen. Coeure additionally noted that European Central Bank is able to react in case of further unwilling developments on financial markets, however, there has not been need for intervention during first couple of days of market turmoil after referendum.

As for current Euro Zone economic developments, German Consumer Price Index reached 0.3% on a yearly basis in June, as per preliminary results released. This is second consecutive month showing increase in CPI, implying on possibility that deflation trend might be finally reversed. A the same time, Euro Zone CPI surprisingly reached 0.1%y/y in June higher from -0.1% in May, with core CPI at 0.9%y/y. Whether Euro Zone inflation is finally set to path of reaching ECB targeted 2% during Y2017 is too early to be concluded, considering that future economic consequences of Brexit referendum are still unknown, and might change economic outlook for EU economy.

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US economy is picking up at moderate pace. As per final GDP data for first quarter, released during previous week, US GDP is increased by 1.1% on a quarterly basis, better than expected. However, personal consumption is modestly decreased to 1.5% q/q, with core PCE of 2.0%, which might imply on some inflation slowdown. However, inflation up trend is still evident, supporting expectations that Fed`s target 2% inflation during this year might be achieved. In addition, consumer confidence has been significantly increased during July reaching 98.0 points up from 92.4 in May.

The currency pair EUR/USD finished week at level  1.1137.



Short review of major fundamentals released during previous week is following:

Monday, June 27, 2016 :

  • US Advance Goods Trade Balance: released data for May show further increase of trade deficit to $-60.6b from $-57.5b posted for April. Figure is also above market estimate at $-59.4b.
  • US Markit Services PMI: preliminary results for June show no change in services sentiment from previous month, however, sentiment is modestly below market expectations at 52.0.
  • US Markit Composite PMI: preliminary results for June show modest increase in composite to 51.2 from 50.9 posted for previous month.

Tuesday, June 28, 2016 :

  • German Import Price Index: released data for May show significant increase in import prices of 0.9% on a monthly basis, above market expectations of 0.6%. On a yearly basis import prices are modestly down to -5.5% from -6.6% during April. Released figure is better from market consensus at -5.8%.
  • US Gross Domestic Product: third estimate for first quarter show improvement of US GDP to 1.1% from 0.8% estimated previously. Figure is also above market estimate of 1.0%.
  • US Personal Consumption: released final data for first quarter show lower than expected increase of personal consumption of 1.5%, down from 1.9% previously posted and below market consensus of 2.0%.
  • US Gross Domestic Product Price Index: released final data for first quarter show lower than expected price index of 0.4% down from 0.6% posted previously.
  • US Core Personal Consumption Expenditure: released data show modest decrease in core PCE to 2.0% for first quarter from 2.1% estimated previously.
  • US Consumer Confidence: released data for June show significantly increased consumer sentiment, reaching 98.0, up from 92.4 released previously and above market consensus at 93.5.

Wednesday, June 29, 2016 :

  • German GfK Consumer Confidence Survey: released data for July show increased consumer sentiment to 10.1 points from 9.8 posted previously, where market estimate was also standing.
  • US MBA Mortgage Applications: released data for week of June 24th show modest drop in mortgage applications of -2.6% compared to previous week`s 2.9% increase.
  • German Consumer Price Index: released preliminary data for June show quite modest change of 0.1% on a monthly basis, below market estimate of 0.2%m/m. CPI change for May was 0.3%m/m. At the same time yearly inflation in June reached 0.3%, in line with market consensus, which is modest increase from 0.1% posted previously.
  • US Personal Income is modestly increased during May by 0.2%, below market expectations of 0.3%.
  • US Personal Spending is up by 0.4% in May, fully in line with market expectations.
  • US Core Personal Consumption Expenditure: released data for May show no change from previously released data. Core PCE is increased by 0.2% on a monthly and 1.6% on a yearly basis.
  • US Pending Home Sales: released data for May show significant decrease in pending home sales of -3.7% on a monthly basis, below market estimate of -1.1%m/m. At the same time pending home sales reached 2.4% compared to same period of last year, significantly below market expectations of 4.6%y/y, but modestly above 1.8%y/y released for previous month.

Thursday, June 30, 2016 :

  • German Retail Sales: released data for May show significant increase in retail sales of 0.9% on a monthly basis, above market estimate of 0.6%m/m. Compared to same period of last year, retail sales are increased by 2.6%y/y, up from 2.3% posted for April and above market estimate of 2.5%.
  • German Unemployment Rate: released data for June show no change in unemployment rate from previous months 6.1%, which was fully in line with market consensus.
  • Euro Zone Consumer Price Index: released data for June show modest improvement in CPI, reaching 0.1% on a yearly basis, up from -0.1% posted previously, also above market estimate of 0.0%. There has been also increase in core CPI to 0.9%y/y, up from 0.8% posted previously and above market consensus at 0.8%.
  • US Initial Jobless Claims: released data for previous week show modest increase to 268k in jobless claims, from 258k posted previously, but still below market consensus at 267k. Continuing claims reached 2.120k modestly down from 2.140k posted previously and below market consensus at 2.152k.

Friday, July 01, 2016 :

  • Markit Germany Manufacturing PMI: final released data for June show quite modest increase in manufacturing sentiment to 54.5 points from 54.4 posted previously.
  • Markit Euro Zone Manufacturing PMI: final data for June show modest improvement of manufacturing sentiment to 52.8 points from 52.6 posted previously.
  • Euro Zone Unemployment Rate: there has been modest decrease of unemployment in Euro Zone during May, reaching 10.1% down from 10.2% posted previously.
  • US Markit Manufacturing PMI: final data for June show modest decrease of index to 51.3, down from 51.4 released previously, but above market consensus at 51.2
  • US ISM Manufacturing: June data show modest increase in manufacturing index to 53.2 from 51.3 posted previously. Figure is above market estimate at 51.3.
  • US Construction Spending: released data show modest decrease of -0.8%m/m, significantly below market estimate at 0.7%.



Below are some of the significant indicators from EUR/USD Economic Calendar to watch during next week:

Fundamentals 04-08 JulyTwo important events to follow during next week, aside from fundamentals, are release of FOMC Minutes from meeting held on June 14-15th, on Wednesday, followed with release of ECB accounts of monetary policy meeting on Thursday. In case that both minutes reveal some new issues not previously communicated with market, this might impose some market volatility on EUR/USD.

Euro Zone Producer Price Index: May data will be released on a monthly and yearly basis. In line with deflation trend within Euro Zone and Germany, German Producer Price Index has followed down trend since Y2013, finally reaching -4.4% on a yearly basis during April this year. Market is expecting some modest trend correction during May with PPI reaching 0.2% on a monthly and -4.0% on a yearly basis.

US Factory Orders: data will be released for May showing changes in factory orders from previous month. Since the beginning of this year, US factory orders had been relatively volatile, when January output of 1.6% has been diminished by -1.7% drop in February. Although March and April brought further increase of 1.1% and 1.9% respectfully, market is estimating modest droop in May of -0.7%.

German Factory Orders: May data will be released on a monthly and yearly basis. Although German factory orders began this year with modest up trend, April brought modest slowdown with drop of -0.5% on a yearly basis or -2.0%m/m. Market is estimating further increase in orders of 0.8% during May.

US Trade Balance: results for May will be released. Since the beginning of this year US trade deficit had been decreased to $-37.4b in April, down from $-45.7b posted for January. However, market is expecting some modest increase in deficit during May to $-40.0b.

German Industrial Production: results for May will be released on a monthly and yearly basis. After strong start at the beginning of this year of 2.2% in January, German industrial production had modestly slowed down during following months, reaching 1.2% increase on a yearly basis during April. Market is expecting its further modest increase to 1.4% y/y and 0.1%m/m during May.

German Trade Balance: results for May will be released showing further trend in German trade balance surplus. After relatively slow start of this year with Eur13.6b during January, trade balance gained strongly during flowing months reaching Eur25.6b in April. Market expectations are standing at modest slowdown in trade surplus to Eur24.0b in May.

US Unemployment Rate: data for June will be released. Considering Fed`s targeting of full employment this is currently one of important indicators to watch. US unemployment rate is continuously decreasing for longer period of time, finally reaching 4.7% during May, down from 5.0% where it was standing for two previous months. Market is expecting indicator modest increase to 4.8% during June, taking into account some other employment indicators that were underperforming during previous month.

US Change in Non-farm Payrolls: June data will be released. After extreme surprise during May, with output of only 38k of new non-farm jobs, both market and Fed will closely watch further developments in this indicator. Market expectations are on side of its increase to levels before May, reaching 179k during June.

Update on released results on a daily basis you can follow-up on Euro Dollar News and EUR/USD Economic Calendar.


EUR/USD Technical Analysis

After strong volatility caused by British referendum as of the end of prior week, markets are calming down due some trend corrections are evident. EUR/USD was traded in a bullish mode, starting week at levels around 1.09, finishing it at 1.1137.

Next significant resistance levels, from current 1.113, can be found at 1.12, 1.1240 up to 1.1390 as short term resistances.

On the opposite side, next support levels are at 1.105 and 1.096 both tested last Friday, down to 1.082 which is long term support level.

Relative Strength Index over 14-day period is currently moving around 45, without indication on trend reversal.

 EUR/USD Chart :

Graph 4-8JulCheck also Euro Dollar History Graph.


For next week I am more on bearish side of EUR/USD

Market uncertainty caused by British referendum is still going to be evident for some time. Full scale of future consequences cannot be estimated at this moment, while much clearer path for both economies will be known after finalization of split-negotiations between EU and UK, which will take place after Britons officially  invoke Article 50 of Lisbon Treaty. Currently, it is also unclear when or even if, this event will take place. Regardless of referendum, possibility of EU economy slowdown during second quarter has been previously noted by both ECB and German DIW Institute economists, due to global growth slowdown and low oil prices.

US economy growth for first quarter of this year has been increased to 1.1% compared to previous quarter, showing relatively strong output. However, there are still some outstanding risks that might put some contraction on future economic growth. Aside from unclear labor market growth, Brexit is expected to have some modest effect in the near-future period. June FOMC meeting minutes will be released during this week followed by US unemployment rate for June, which might add some volatility to EUR/USD. As per technical analysis there is still space for currency pair to test again levels of 1.10 down to 1.09, before it revert back to 1.12 levels.


Do you want to know what investment banks think of the EUR / USD? Check out the Euro to Dollar Forecast

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