EUR USD Weekly Forecast 11-15 July 2016.

How realistic is Fed`s rate increase during second half of this year? Following Fed Chair Yellen testimony to the Senate and Minutes of June FOMC meeting, it is going to be quite challenging decision for FOMC members. Minutes of June FOMC meeting, released during previous week, revealed general FOMC members consensus over modest growth of US economy with some slowdown in the labor market, which is expected to improve during following months. It has been noted slowdown in fixed business investment mostly influenced by decrease in profits and concerns regarding future growth of economy. Inflation is expected to continue slowly to targeted 2% during course of this year, while some modest slowdown during April and May has been influenced with drop in oil prices and decreased import prices. Inflation and global economic developments are continued to be closely watched by FOMC members. Decision not to increase interest rate further, during June meeting, was supported by several members pointing on unclear developments on labor market and uncertainty over Brexit referendum. However, during testimony to Senate, Fed Chair Yellen  noted that Fed will continue with cautious approach and that next rate increase will depend on likeliness of reaching targeted 2% inflation rate. As per released data during previous week, unemployment rate is up to 4.9%, from better than expected 4.7% posted for previous month. On a positive side non-farm payrolls are up to 287k in June, after very disappointing 11k posted previously. June consumer price index will be released on Friday, while next FOMC meeting is scheduled for July 26-27th.

Accounts of ECB monetary policy meeting had been released during previous week. Moderate but steady recovery with very low inflation pressures are expected to continue during next few months. Inflation is expected modestly to pick up during second half of this year and through Y2017 and 2018 following increase in oil prices. Growth is to continue to be supported by domestic demand. During meeting, Brexit had been also recognized as one of downside risks for EU economy without possibility to anticipate its effects in advance. Although OECD previously estimated 1% decrease in growth through Y2018 in case of Brexit, ECB`s President Draghi noted during previous week his expectations of only 0.5% drop in growth. Target set during ECB meeting was full implementation of additional stimulus measures adopted during March meeting including Corporate Sector Purchase Program that became effective as of June 8th  and Targeted Longer Term Refinancing Operations II program which started on June 22nd on a quarterly basis.

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The currency pair EUR/USD finished week at level  1.1049.

 

FUNDAMENTALS WEEKLY UPDATE : 

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

Monday, July 04, 2016 :

  • Euro Zone Producer Price Index: released data show modest increase in PPI of 0.6% during May, above market estimate of 0.3%. At the same time PPI is decreased to -3.9% on a yearly basis, down from -4.4% posted during previous month, and above market expectations at -4.1%.

Tuesday, July 05, 2016 :

  • Markit Germany PMI: released final data for June show modest increase in sentiment for services to 53.7 points compared to 53.2 posted initially. For the same period, composite indicator jumped to 54.4 from 54.1 initially estimated.
  • Markit Euro Zone PMI: final June data show modest increase in services sentiment for Euro Zone to 52.8 from 52.4 posted previously. Composite sentiment for same period rose to 53.1 from 52.8 initially estimated.
  • Euro Zone Retail Sales: released data for May show further increase in retail sales of 0.4% on a monthly basis, in line with market expectations, bringing increase of 1.6% compared to same period of last year. Although yearly data are up from 1.4% posted for previous month, they were still below market estimate of 1.7%y/y.
  • US Factory Orders: posted data for May show moderate decrease of -1.0% on a monthly basis, below market consensus at -0.8%m/m. Factory orders excluding transportation are up for 0.1%m/m.
  • US Durable Goods Orders: final data for May show further drop to -2.3%, down from -2.2% initially released where market expectations were also standing. There had not been changes in durables excluding transportation from initially posted -0.3%.

Wednesday, July 06, 2016 :

  • German Factory Orders: released data for May show factory orders standing at 0.0% on a monthly basis, significantly below market estimate of 1.0%. Although indicator is modestly improved to -0.2% on a yearly basis, up from -0.4% posted for previous month, figure was still very well below market consensus at 0.9% y/y.
  • Markit Germany Construction PMI: June data show modest decrease in German sentiment for construction industry, reaching 50.4 points, down from 52.7 posted previously.
  • Markit Germany Retail PMI: sentiment for June is modestly decreased to 51.6 points from 54.0 posted for previous month.
  • Markit Euro Zone Retail PMI: indicator reached 48.5 points in June, down from 50.6 points posted previously, showing negative sentiment for Euro Zone retail industry.
  • US MBA Mortgage Applications: data for week of July 01st show extraordinary increase in mortgage applications of 14.2% after -2.6% drop during previous reporting week.

Thursday, July 07, 2016 :

  • German Industrial Production: released data for May show unexpected drop in German IP of -1.3% on a monthly basis, significantly below market expectations at 0.0%. On a yearly basis, IP reached negative territory of -0.4%y/y, down from 0.8% posted for previous month and significantly below market estimate of 1.5%.
  • US ADP Employment Change: June data show modest increase of 172k, up from 168k posted previously and above market consensus at 160k.
  • US Initial Jobless Claims are down to 254k for reporting week of July 2nd, down from 270k posted previously and below market estimate at 269k. Continuing claims reached 2.124k, down from 2.168k released previously, but above market estimate of 2.120k.

Friday, July 08, 2016 :

  • German Trade Balance slowed down in May, reaching Eur21.0b, modestly below Eur25.7b reached during previous month. Figure is also below market estimate of Eur23.5b.
  • German Current Account balance surplus plunged during May to Eur17.5b, down from 28.4b released for previous month. German exports are decreased by -1.8%m/m, significantly above market expectations at 0.4%m/m, while imports are modestly up for 0.1%m/m, below expectations of 0.7%m/m.
  • US Unemployment rate: released data for June show modest increase of US unemployment to 4.9%, up from 4.7% posted previously and above market estimate of 4.8%.
  • US Change in non-farm Payrolls: data for June show significant increase in non-farm figures of 287k jobs, significantly above market estimate at 180k. This is positive development after extraordinary drop in non-farm payrolls during previous month of only 11k as per revised figures release. Private payrolls reached 265k, significantly above -6k posted previously and above market consensus at 170k. Manufacturing payrolls are up for 14k from -16k posted during previous month.
  • US Average Hourly Earnings: posted figures show modest increase in earnings of 0.1% compared to previous month, leading to increase of 2.6% on a yearly basis. Both figures had been below market estimate of 0.2%m/m and 2.7%y/y.

 

FORECAST FOR THE COMING WEEK

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

Fundamental 11-15JulyRelatively large number of important data will be released during next week, implying that some EUR/USD increased volatility is ahead.

German Consumer Price Index: final results for June will be released. Initial estimate for June was standing at 0.3%y/y and 0.1%m/m, while market is not expecting any change for second and final CPI estimate.

Euro Zone Industrial Production: results for May will be posted both on monthly and yearly basis. After relatively strong start of this year with IP increase of 2.8%y/y during January, following months brought significant relaxation of 0.8%y/y in February, reaching lowest level of only 0.2%y/y in March. However, trend was strongly reverted in April with IP reaching 2.0%y/y, while market is expecting its modest decrease of -0.8% on a monthly basis in May, leading to 1.4%y/y.

Federal Reserve will release Beige Book on Wednesday, providing information on current situation in US general business environment and sentiment. Although release of Beige book usually don’t imply any significant market reaction, it is valuable source of current development in US economy.

Euro Zone Consumer Price Index: results for June will  be posted on a monthly and yearly basis. Since the beginning of this year, Euro Zone CPI is struggling to break deflation trend, supported by extensive quantitative easing measures imposed by ECB. April`s -0.2%y/y was modestly improved during May to -0.1%, while market is expecting finally to see Euro Zone CPI reaching positive figure of 0.1% during June. During May monthly inflation was standing at 0.4%, while core CPI was 0.9%.

US Retail Sales: June results will be released. Although beginning of this year show some relaxed mode in retail sales, April`s increase of 1.3% followed with May`s 0.5% showed some pick-up in retail sales. However, market is expecting quite modest increase of 0.1%m/m in June.

US Consumer Price Index: results for June will be posted on a monthly and yearly basis. Although US CPI started strongly this year reaching 1.4% in January, following months brought modest relaxation with CPI moving around 1.0%. Expectations are still on a side of US inflation further increase during second half of this year in line with increase in employment, wages and spending. Market consensus is standing at 0.2%m/m and 1.1%y/y during June.

US Industrial Production: results for June will be released showing changes from previous month. Since the beginning of this year US IP is stagnating, exposing some weaknesses in US economy. IP during May was down for -0.4%m/m while market is expecting quite modest increase of 0.2% in 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

Previous week was traded in clear bearish mode, from levels 1.1180 at the beginning of the week, down to 1.10, finishing week at 1.1049.

Next significant resistance levels, from current 1.105, can be found at 1.113, 1.12, 1.1240 up to 1.1390 as short term resistances.

On the opposite side, next support levels are at 1.096 tested on Friday after release of Brexit results, down to 1.082 which is long term support level.

Relative Strength Index over 14-day period is currently moving around 40, still without clear indication on trend reversal.

 EUR/USD Chart :

Chart 11-15JulCheck also Euro Dollar History Graph.

 

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

After two weeks of Brexit referendum market is calming down, returning slowly to price actual fundamentals, at least until next significant news on UK-EU split. US economy is moving at moderate pace. Strong data released on employment during previous week are adding some sentiment to market expectations for December rate hike. However, there is still five months till December meeting, due it is too early to anticipate any potential Fed move. What is certain at this moment is that US economy is growing slowly but gradually with some seatbacks in industrial production, long-term investments and still relatively unclear path of labor market. On the other side, EU economy is expected to grow on a moderate pace, with inflation still being at very low levels following drop in oil prices.

Following move toward 1.09 levels after Brexit results, two weeks ago, technical analysis is implying that there is still space for 1.096 support level to be tested once again before trend reversal to levels of 1.113 up to 1.12.

 

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

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