EUR USD Weekly Forecast 20 – 24 June 2016.

Fed left interest rate unchanged during last week, with uncertainty as predominant word used many times by Fed Chair Yellen during after-meeting conference. Direction of interest rates on a long run could not be defined at this moment as developed economies might be stuck in environment of low interest rates for a long period of time after Y2008 financial crisis. However, Fed Yellen noted that increasing inflation to targeted 2.0% might trigger next Fed`s rate hike during this year, despite expectations of slowdown in labor market. British referendum to leave EU has been recognized as one of risks for US economy, and also has been one of factors influenced Fed decision to postpone rate increase. US financial sector will be one of the most hit industries by Britons leave, as many companies used London centrals to enter rest of Europe. Anyhow, at this moment markets are not putting too much confidence in July rate increase, but rather see next Fed move during September or December meetings.

ECB corporate bond purchasing program which started as of Jun 8th as part of Eur1.7trillion stimulus program, made significant impact on Euro Zone bond market as Eur342 million worth of bonds has been purchased by ECB during first three days. Although EU corporations are benefiting from such cheap-money stimulus, analysts are pointing to risks that it brings in terms of asset bubble and market distortions as fundamentals will not be reflected in credit spreads. In addition, ECB might end up with portfolio of junk assets. However, for the moment, released data show some modest recovery of EU economy. Industrial production jumped for 1.1% during April, leading to 2.0% on a yearly basis, significantly above market expectation. Output of EU economy reached 0.6% on a quarterly basis during first quarter of this year, while Organization for Economic Cooperation and Development estimated Euro Zone growth of 1.6% during this year followed with 1.7% for next year. However, Britons referendum on exit from EU, which is scheduled for next week, might completely change all current economic projections.

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The currency pair EUR/USD finished week at level  1.1276.

 

FUNDAMENTALS WEEKLY UPDATE : 

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

Tuesday, June 14, 2016 :

  • Euro Zone Industrial Production: released data for April show significant increase in industrial output of Euro Zone of 1.1% on a monthly basis. Result is much better from market consensus at 0.8% and also higher from previous month output of -0.7%m/m. At the same period, IP on a yearly basis reached 2.0% significantly better from 0.2% posted previously and above market estimate of 1.4%.
  • Euro Zone Employment: released data show 0.3% increase in employment on a quarterly basis for first quarter of this year, leading to 1.4% increase compared to same period of last year.
  • US Retail Sales: during May retail sales were up for 0.5% on a monthly basis, above market expectation at 0.3%. Excluding autos, retail sales increased by 0.4% on a monthly basis, slightly below 0.8% posted previously, but fully in line with market consensus.
  • US Business Inventories: released data for April show modest increase in business inventories of 0.1%, modestly below market estimate of 0.2%.

Wednesday, June 15, 2016 :

  • Euro Zone Trade Balance: released figures for April show better than expected increase in trade balance surplus reaching Eur28.0b, which is increase from Eur23.7b posted for March, and also above market consensus at Eur21.5b. Non-seasonally adjusted trade surplus reached Eur27.5b during April.
  • US Producer Price Index: released data for May show 0.4% increase in producer prices on a monthly basis, better from market expectations at 0.3%. Compared to same period of last year, producer prices decreased for -0.1%, down from 0.0% posted previously. Excluding food and energy prices are increased for 0.3% m/m above market consensus at 0.1%m/m.
  • US Industrial Production: released data show modest slowdown in US industrial output of -0.4% on a monthly basis, below market consensus of -0.2%m/m.
  • US Capacity Utilization: data for May show modest decrease of capacity utilization to 74.9% down from 75.3% posted previously and below market consensus at 75.2%.
  • FOMC Rate: no change in rate from previous 0.50%.
  • FOMC Rate Lower Bound: no change in rate from previous 0.25%
  • US Net Long term TIC Flows: released data for April show outflow in Net Long-Term Treasury International Capital flows of $-79.6b.

Thursday, June 16, 2016 :

  • Euro Zone Consumer Price Index: released data for May show modest increase of Euro Zone inflation of 0.4% on a monthly basis, better from 0.3%m/m market estimate. Final CPI estimate on a yearly basis is -0.1% as posted previously and in line with market consensus. For the same period, core inflation was standing at 0.8% on a yearly basis.
  • US Current Account Balance significantly increased during first quarter reaching $-124.7b, still below market consensus at $-125.0b. Revised figure for last quarter of previous year is $-113.4b.
  • US Initial Jobless Claims increased during previous week reaching 277k, up from 264k posted previously, and above market estimate at 270k.
  • US Consumer Price Index: released data for May show modest increase of 0.2% on a monthly basis, below market consensus of 0.3%. For the same period yearly inflation reached 1.0% modestly below 1.1% posted previously which was also market expectation. Core inflation was up for 0.2% on a monthly basis, reaching 2.2% compared to same period of last year, which is increase from 2.1%y/y posted previously.
  • National Association of Home Builders  Housing Market Index: released data for June show increased sentiment on sales of new homes at present and within six months time, with index reaching 60, up from 58 posted previously, and above market consensus at 59.

Friday, June 17, 2016 :

  • Euro Zone Current Account: rereleased data for April show further increase in current account surplus reaching Eur36.2b up from Eur26.3b posted for previous month. Non-seasonally adjusted current account surplus was standing at Eur34.0b, up from Eur31.3b released previously.
  • US Housing Starts: released data for May show modest decrease of -0.3% on a monthly basis, significantly better from -1.9% estimated by market. During April housing starts were increased by 4.9% m/m.

 

FORECAST FOR THE COMING WEEK

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

Fundamentals 20-24JunFed Chair Yellen will hold semi-annual testimony on monetary policy to Senate Banking Panel on Tuesday, providing some further insight on future monetary policy  moves and current state of US economy as discussed on latest FOMC meeting held last week.

German Producer Prices: results for May will be released showing changes in producer prices of German manufacturers both on a monthly and yearly basis. In line with deflation trend within Euro Zone, German producer prices has been following this trend since the beginning of this year, moving from -2.4% on a yearly basis in January, down to -3.1%y/y during March and April. Market is expecting some modest improvement in German PPI of 0.3%m/m and -2.7%y/y.

US Existing Home Sales: results for May will be released. During second quarter of this year, US housing market generally rebound with some strong figures released on home sales. After strong drop in February of -7.1% on a monthly basis, existing home sales market rebound by 5.1%m/m in March followed with 1.7% in April. Market is expecting continuing positive trend with 1.8% m/m increase during May.

US New Home Sales: data for May will be released showing changes in new home sales  from previous month. Although sales figures has been relatively weak since the beginning of this year, increase of 16.6% during April has beaten all expectations. However, for May market is expecting to see some relaxation after April figures and drop of -8.6%.

US Durable Goods Orders: results for May will be released. Strong investment in durable goods of 4.9%m/m in January has been partially diminished with drop of -2.8%m/m in February. However, 3.4%m/m during April beaten every market expectation. Market is estimating some modest slowdown in durable goods orders of -1.%m/m in May.

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 revealed strong resistance level at 1.13, which has been tested during almost each day. FOMC decision on postponed rate increase on Wednesday brought strong move toward support level at 1.113, however, trading were shortly after reverted back to levels of 1.1250 and 1.13.

Clear break of 1.13 current resistance level would lead to market testing next resistance at 1.1390 and further to 1.1450 which is significant resistance level tested many times during previous years.

Inability to break 1.13 resistance level would lead market to test next support levels at 1.1240, 1.1200 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 :

Graph 20-24JunCheck also Euro Dollar History Graph.

 

For the next week I am neutral on EUR/USD

Week ahead is going to be fully marked with Brexit referendum scheduled for June 23rd. As Brexit is recognized as significant risk for developed economies, it could be expected some increased market volatility affecting not only GBP but also all other major currencies. If Britons vote for exit, there could be some general bearish move in EUR/USD toward levels of 1.1 or even below, considering that Euro Zone economy will be hit by such decision. On the other side, if Britons vote to stay within EU, then negative market developments shall be avoided and currency pair will continue to move between levels of 1.12 till 1.1350. Due to high uncertainty over referendum outcome, I am staying neutral for next week.

 

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

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