EUR USD WEEKLY FORECAST

There are no changes in current ECB interest rates and its bond-buying program, as per ECB decision made during its meeting held on Thursday, which was fully in line with market expectations. As noted by President Draghi, it takes time for measures to give effect and in this sense, effects of measures imposed during last month`s ECB meeting including bringing interest rates into negative territory followed with expansion in bond purchasing, is up to be seen in the future period. However, measures might not end here, since President Draghi noted that ECB stimulus might be expanded further, if needed. Announcement of corporate sector purchase  program, or CSPP, that will start in June this year, gave positive stimulus to European equity market. The program includes purchasing of investment grade euro-denominated bonds issued by non-bank corporate, both on primary and secondary market. Some analysis’s expressed their concerns that such unprecedented measures might bring ECB to end up with bulk of junk bonds, considering possibility of downgrading some of those companies currently eligible for CSP program.  However, most critics on current ECB measures are coming from Germany, as negative interest rates are hurting retail savings and pension plans. In addition, June 23rd is bringing U.K. “Brexit” referendum, which can make negative impact on ECB imposed measures if U.K. decides to exit EU.

During next week April FOMC meeting will be held, again with potential interest rate increase in focus. As per market expectations rate hike is not expected to occur during this meeting, but is much more likely to occur during second half of this year, most probably during December. However, focus of the market is going to be set on FED rhetoric regarding economic growth progress, and in this sense potential future actions.  Such views are supported by relatively weak results of US economy output since the beginning of this year, as well as with general slowdown of world economy. During previous week posted results showed drop of 8.8% of US housing starts for March, while positive developments are continuing on employment part where US jobless claims surprisingly dropped to 247K during previous week.

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The currency pair EUR/USD finished week at level  1.1223.

FUNDAMENTALS WEEKLY UPDATE : 

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

Tuesday, April 19, 2016 :

  1. German ZEW Survey (Current Situation): results for April show modest decrease in index to 47.7 from previous 50.7. Market consensus was at 50.8.
  2. German ZEW Survey (Economic Sentiment) : results for April show better then expected improvement in index to 11.2 from previous 4.3. Market consensus was at 8.0.
  3. Euro-Zone ZEW Survey (Economic Sentiment): results for April show improvement in economic sentiment to 21.5 from previous 10.6.
  4. US Housing Starts (MoM): results for March show modest drop in new housing starts to 1089K from previously reported 1178K and below market expectation of 1170K.

Wednesday, April 20, 2016 :

  1. German Producer Prices (YoY): results for March show continuous trend in deflation where producer prices reached -3.1% on a yearly basis. Results reported for previous month were at -3.0%, while market expectation has been at -2.9%.
  2. US Existing Home Sales (MoM): results for March show modest improvement in existing home sales of 5.1% compared to previous months -7.1%. Figure is also above market expectation of 3.5%.

Thursday, April 21, 2016 :

  1. European Central Bank Rate Decision : no change. Rate is left at 0.00%.
  2. European Central Bank Deposit Facility Rate : no change. Rate is left at -0.40%.
  3. European Central Bank Marginal Lending Facility: no change. Rate is left at 0.25%.
  4. US Initial Jobless Claims : results show modest decrease in jobless claims to 247K from 253K during previous week, and below market expectation of 265K.
  5. US House Price Index (MoM): results for February show no change in housing prices from previous month of 0.4% which is also in line with market expectations.

Friday, April 22, 2016 :

  1. EU Markit Germany Services PMI: preliminary results for April show modest decrease in index to 54.6 compared to 55.1 previously reported and also below market expectations of 55.1.
  2. EU Markit Euro-zone Manufacturing PMI: preliminary results for April of 51.5 show almost no change compared to previous month 51.6. Figure is slightly below market consensus of 51.9.
  3. US Markit Manufacturing PMI: preliminary results for April show modest decrease in PMI index to 50.8 from 51.5 previously reported and below market expectations of 52.0

FORECAST FOR THE COMING WEEK

Below are some of the significant indicators to watch during next week:

EURUSD fundamentals 25-29Apr

Five-star event for the next week is FOMC meeting on Wednesday. Market will extremely closely watch any signals from FED on the state of US economy. Although increase in interest rate is not expected during this meeting, any signals from FED on potential future course of action or its view on current growth progress might trigger significant market move.

German IFO : results for April will be posted for one of the most important business sentiment indicators in Germany. Business climate, Current Assessment and Expectations were previously standing at 106.7, 113.8 and 100 respectfully.

US Durable Goods Orders: preliminary results for March will be posted showing current state of orders placed for durable goods. Previously this indicator was standing at -3.0% showing slowdown in orders.

US Consumer Confidence: very important indicator for US economy showing confidence of consumers for business conditions, employment and personal income. Previously was standing at 96.2.

German GfK Consumer Confidence Survey: results for May will be posted. Previously indicator was standing at 9.4.

US Advance Goods Trade Balance: results for March will be posted. Result for February was -$62.864b.

German Unemployment Data: results for April will be posted for unemployment change and unemployment rate. Previously these indicators were at 0 and 6.2% respectfully.

German Consumer Price Index: preliminary results for April will be posted on a yearly basis, showing movements in CPI of Euro-Zone strongest economy. Previously posted result was 0.3%.

US Gross Domestic Product: annualized results for first quarter will be posted, showing output of US economy. As of the year-end US GDP was at 1.4%.

US Personal Consumption: annualized results for first quarter will be posted. Previously indicator was standing at 2.4%.

Euro-Zone core Consumer Price Index: annualized core CPI will be posted for April. Previously indicator  was at 1%.

Euro-Zone Gross Domestic Product: results for first quarter will be posted on a yearly basis. Previously EU GDP was standing at 1.6% y/y.

 

EUR/USD Technical Analysis

After reaching short term resistance level at 1.138, the pair end week testing short term support level at 1.123.

Break of 1.123 support would lead to testing levels of 1.115 and further  1.105 which has also been tested during March of this year.

On the opposite side, break from 1.1230 would lead to short term resistance at 1.130 and 1.135 up to 1.14 .

Relative Strength Index over 14-day period is currently at levels above 40, showing no clear indication on potential trend reversal.

Graph 25-29 Apr

 

 

 

 

 

 

 

 

 

 

 

 

 

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

For the next week I am bearish on EUR/USD

Main event scheduled for the next week is FOMC meeting, where FED officials will discuss current US economic developments and potential spillover effect of world recession. Rate increases are also going to be one of the meeting topics, however, market is not expecting any changes in rates current levels. It could be expected that FED`s officials rhetoric will be translated into market USD pricing after FOMC meeting. In addition, during next week results on GDP of both US and Euro-zone are going to be posted, followed with Euro-Zone CPI, bringing additional sentiment to market. For sure, it is going to be one exiting week on financial markets.

During previous week currency pair tested both short term support and resistance levels at 1.138 and 1.123. Break of 1.123 support level would lead EURUSD pair to test new levels at 1.115 and 1.105. On the opposite side, next resistance levels can be found at 1.130 and 1.135. There is a possibility that during next week market will try shortly to test again level of 1.13, however I am anticipating based on fundamentals and technical analysis that currency pair will finish week testing short term support levels at 1.115.

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