EUR USD Weekly Forecast 13 – 17 June 2016.

Will Fed vote YES on Wednesday? Although during recent period market expectations have been heated by statements of several FOMC voting members supporting June/July rate increase, there are still some weakness in US economy and external risks that might influence rate increase decision to be postponed for July or even September meeting. Aside from economic growth, other two Fed policy targets are set to be reaching full employment and inflation of 2% as of year-end. With CPI reaching 1.1% in April and increase in wages and spending, there is high probability that 2% inflation target will be reached. On the other side, labor market figures have been quite mixed, with unexpected drop in nonfarm payrolls of only 38k during May. Holding a speech in Philadelphia on Monday, Fed Chair Yellen commented that labor market data needs careful attention and found payroll data “disappointing”, however seeing other labor market data as much more positive. With respect to potential near-future strengthening of monetary policy, she has noted that gradual rate increase might occur only if conditions are met. She concluded that there are much more positive economic developments than negative in US economy. Whether this positive developments are strong enough to push interest rates further, is up to be seen on Wednesday. In addition, it must also be taken into account that Brexit referendum is recognized as one of the risks for US economy, during last FOMC meeting, and it should be accounted as one of the potential reasons, among others, for possible rate increase postponing.

ECB still need time to push inflation to close 2% which is now its medium term goal, although ECB member Hansson voicing for longer term. At the same time, ECB President Draghi noted that reliance only on monetary measures might influence Euro Zone`s slow economic growth with weak productivity, and in this sense, joint effort of EU governments is necessary to boost inflation and growth, which would support already implemented ECB measures. Released data during previous week show final GDP growth of 0.6%q/q for first quarter of this year. Euro Zone inflation was standing at  -0.2% on a yearly basis during April, with core inflation at 0.8%y/y, while May figures will be released during this week.

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The currency pair EUR/USD finished week at level  1.1253.

 

FUNDAMENTALS WEEKLY UPDATE : 

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

Monday , June 6, 2016 :

  1. German Factory orders: released data show significant drop in factory orders by -2.0% during April on a monthly basis, above market expectations of -0.5%m/m. During March, factory orders were standing at 2.6%m/m. Compared to previous year, factory orders dropped to -0.5%y/y, down from 2.4% posted for March, and significantly below market consensus at 0.6%.
  2. Markit Germany Construction PMI: results for May show modest drop in sentiment to 52.7 from 53.4 previously posted.
  3. Markit Germany Retail PMI: results for May show increase in retail sentiment to 54.0, up from 51.0 posted previously.
  4. Markit Euro Zone Retail PMI: sentiment for May improved to 50.6, better from 47.9 previously posted.

Tuesday, June 7, 2016 :

  1. German Industrial Production: seasonally adjusted industrial production in Germany is increased for 0.8% on a monthly basis, above market expectations at 0.7%. Posted figure for previous month was -1.1%. Non seasonally adjusted industrial production reached 1.2% on a yearly basis during April, significantly higher from 0.4% posted for March, and above market consensus at 1.0%.
  2. Euro Zone Gross Domestic Product: final estimate for first quarter improved, reaching 0.6% on a quarterly basis, which is increase from 0.5% initially estimated. On a yearly basis, GDP is standing at 1.7% for first quarter, increased from 1.5% initially estimated.
  3. US Non-farm Productivity: final data for first quarter show modest improvement to -0.6% from initially estimated -1.0%. Released figure was fully in line with market estimate.
  4. US Unit Labor Costs: final data for first quarter show increase in labor cost of 4.5% from 4.1% initially estimated. Figure is also higher from market estimate of 4.0%.

Thursday, June 9, 2016 :

  1. German Trade Balance: released data show modest decrease in trade balance surplus to 25.6b in April, down from 26.2b posted for March. Figure is better from market estimate at 21.3b. There had not been any change in German exports from previous month, while imports are down for -0.2% on a monthly basis. Market was expecting -0.9% drop in exports and 1.2% increase in imports.
  2. US Initial Jobless Claims: released data show further decrease in jobless claims to 264k during previous week, down from 268k posted previously, and better from market consensus at 270k.
  3. US Wholesale Inventories: released data show modest increase in inventories of 0.6% during April, higher than market consensus at 0.1%.

Friday, June 10, 2016 :

  1. German Consumer Price Index: released final figure for May show no change from previously posted data. German CPI during May was standing at 0.3% on a monthly basis and 0.1% on a yearly basis.
  2. US University of Michigan Confidence: preliminary results for June show quite modest decrease of index to 94.3 from 94.7 posted previously. Index is still above market estimate of 94.0.

 

FORECAST FOR THE COMING WEEK

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

Fundamentals 13-17JunFive-star event for the next week is FOMC meeting on Wednesday, where its member will decide on strengthening of monetary policy through further rate increase and provide economic projections for US economy. Any decision, at this moment, might imply significant market reaction.

Euro Zone Industrial Production: results for April will be released. After drop in December of -1.3% y/y, Euro Zone industrial production rebound modestly, reaching 0.2% on a yearly basis during March. At the same time, strong industrial output in January of 2.1% on a monthly basis has been partially diminished with drop of -0.8%m/m for two consecutive months.  Market is expecting modest improvement during April of 0.4% increase for month and 1.0% on a yearly basis.

US Retail Sales: results for May will be released. After quite modest beginning of the year, US retail sales strongly rebound reaching 1.3% increase on a monthly basis during April. At the same time, retail sales excluding autos were increased for 0.8% on a monthly basis.  Market is expecting continuing trend with increase of 0.4% during May.

US Industrial Production: results for May will be released. After relatively strong output of US industrial production during January with 0.9% increase on a monthly basis, February and March  brought some slowdown with -0.5% m/m and -0.6% on a monthly basis. During April, IP was increased for 0.7%m/m, however, market is expecting to see some modest slowdown during May of -0.1%m/m.

Euro Zone Consumer Price Index: final results for May will be released. Currently this represents one of the crucial indicators to watch for Euro Zone, considering extensive quantitative easing measures imposed by ECB in order to generate growth and inflation within Euro Zone. Deflation trend is still evident with ECB projections that targeted near but close to 2% inflation level to be reached during Y2017 and 2018.  During April CPI was standing at 0.0% on a monthly and -0.2% on a yearly basis, with core inflation at 0.8%y/y.

US Current Account Balance: results for first quarter will be released. As of the end of last year current account deficit was standing at $-125.3b.

US Consumer Price Index: results for May will be posted. As of start of second quarter of this year, US inflation is modestly picking up reaching 0.4% on  a monthly basis during April, bringing it to 1.1% compared to same period of last year. Considering posted increase in wages and other labor market developments, market is expecting US inflation to modestly pick up toward Feds target of 2% till the end of this year. However, current market CPI estimate for May stands at 0.3% on a monthly and 1.1% on a yearly basis.

US NAHB Housing Market Index: results for June will be released showing sentiment on sales of new homes at present and within six months time. Since February index is standing at 58, hence market is not expecting any change in index for June.

Euro Zone Current Account: results for April will be released. Seasonally adjusted current account surplus was standing at Eur27.3b during March.

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 testing resistance level at 1.1390 during last week, as of the week-end currency pair reverted short-term trend toward short term support level at 1.1320. Break of 1.1320 level on Friday, led EUR/USD toward next support at 1.12,  finishing week at 1.1250. Short term support level at 1.12 has not been tested.

Clear break of 1.1390 resistance level would lead to next long term resistance at 1.1450 and further to 1.16. On the opposite side, next support levels from 1.1250 are at 1.12 down to 1.113 and 1.105.

Relative Strength Index over 14-day period is currently moving below 60, without indication on trend reversal.

 EUR/USD Chart :

Chart 13-17Jun

EUR/USD daily graph with support and resistance lines, RSI and MA

Check also Euro Dollar History Graph.

 

For the next week I am neutral on EUR/USD

FOMC meeting will be held on Wednesday, discussing potential rate increase, due some increased dollar volatility might be expected prior to the meeting. There is fifty percent chance that rates will be increased supported by economic growth and increased inflation, but there is also another fifty percent that rates will not be increased due to exposed weaknesses in labor market and forthcoming Brexit referendum scheduled for following week. Although, I am much more on side that rate increase decision will be postponed for July meeting, there are still equal chances that Fed will vote for rate increase. If Wednesday decision is YES, then currency pair might head toward levels of 1.11 down to 1.10. If decision is NO than we might see currency pair heading toward 1.14 levels again. Anyhow, until Wednesday, I will stay on neutral side, waiting for Fed.

 

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

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