EUR USD Weekly Forecast

Markets just don’t like uncertainty and luck of clear communication from FED officials. We have seen this again after FOMC meeting during last week, when US currency slipped against all major currencies, reaching level of 1.14 against Euro as of the week-end. There had not been any surpasses during FOMC meeting held on Wednesday. As expected, there had not been increase in interest rates, but also there is currently no clear indication on the next tightening of monetary policy, which has been and still is one of the major topics markets are nervously watching out. For the moment, FEDs rhetoric is quite modest, not providing any clear guidance on eventual future policy move. Strengthening of labor market and reaching full employment is currently one of the major targets of FEDs policy. They are to some extent still watching developments on world scene and possible spillover effect on US economy. Rise in household income is seen positively, considering its implications on future increased spending and potential impact on inflation. Results posted during last week on personal consumption of US citizens are showing modest increase of 1.9%, indicating potential impact on CPI. However, posted GDP for first quarter of 0.5% is the most slowest growth rate for the last two years, obviously showing very modest US economic growth, which was also been less than 0.7% where market was expecting to see US economic output.

Results posted during previous week on both German and Euro-Zone economy are still indicating clear deflation trend, however, with better than expected EU-Zone economic output and unemployment. Germany`s CPI slipped during April to 0.1% on a yearly basis, while unemployment reached lowest level for the last 14 years. At the same time, EU zone CPI is slipped to -0.2%, while unemployment is relatively unchanged at 10.2%. On a positive side, output of EU economy for the first quarter is relatively strong. Released figures for EU GDP  are showing growth of 0.6% on a quarterly basis, bringing  GDP figure to 1.6% compared to same period of last year.  It is clear that ECB measures targeted to halt deflator trend are still struggling for results, however, President Draghi is convinced that it takes time for imposed measures to give concrete results, and he is expecting  some pickup during second half of the year. What is currently evident is that ECB`s CSPP program is supporting issuance of long term debt by EU companies, which can also be locked in record-low interest rates at this moment.

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The currency pair EUR/USD finished week at level  1.1447.

 

FUNDAMENTALS WEEKLY UPDATE : 

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

Monday , April 25, 2016 :

  1. German IFO – Business climate: results for April show almost no change in relation to previous month: 106.6 v.s. 106.7. However, figure is below market expectation of 107.1.
  2. German IFO – Current Assessment: results for April show modest decrease in sentiment to 113.2. Previously posted 113.8 same as market expectation for April.
  3. German IFO – Expectations: results for April show modest increase in sentiment to 100.4 compared to 100.0 posted previously, however below market expectations of 100.9.
  4. US New Home Sales (MoM): result for March show modest decrease in new home sales by -1.5% compared to previous month. Market expectation was at 1.6%, while figure posted for previous month was 2.0%.

Tuesday, April 26, 2016 :

  1. US Durable Goods Orders: preliminary results for March show modest increase in orders of 0.8%, still below market expectation of 1.9%. Result for previous month was -3.0%.
  2. US Durables excluding Transportation: preliminary results for March show modest improvement in results to -0.2% compared to -1.3% previously posted, but still below market consensus of 0.5%.
  3. Markit US Services PMI: preliminary results for April show one point change in sentiment to 52.1 from 51.3 previously posted. Market expectations were at 52.0.
  4. Markit US Composite PMI: preliminary results for April show almost no change in sentiment to 51.7 from 51.3 previously posted.

Wednesday, April 27, 2016 :

  1. German GfK Consumer Confidence Survey: results for May show modest increase in sentiment to 9.7 from 9.4 previously posted. Result is also above market expectations of 9.4.
  2. US Advance Goods Trade Balance: results for March show significant drop in goods trade deficit to -$56.900b, compared to -$62.864b previously posted. Figure is also much better from market consensus at -$62.800b.
  3. US FOMC Rate Decision: rate is unchanged from level of 0.5%.
  4. US FOMC Rate Decision (Lower Bound): rate is unchanged from level of 0.25%.

Thursday, April 28, 2016 :

  1. German Unemployment Change: results for April show decrease in unemployment change to -16K from previous -2K. Market consensus was at 0K.
  2. German Unemployment Rate: results for April show no change from previously posted 6.2% which is fully in line with market expectations.
  3. German Consumer Price Index: preliminary results for April show modest decrease in CPI to 0.1% on a yearly basis, compared to 0.3% previously posted. Posted figure is fully in line with market consensus.
  4. US Initial Jobless Claims: there is modest increase of 10K of new jobless claims during last week, compared to 247K previously posted. Figure is slightly below market expectation of 260K .
  5. US Gross Domestic Product: as per posted results, annualized US GDP for first quarter is 0.5%, less than market expectations of 0.7%. As of the last quarter of last year, GDP was standing at 1.4%.
  6. US Personal Consumption: annualized data for first quarter of 1.9% are better than expected at 1.7%. As of the end of last year personal consumption was at 2.4%.
  7. US Gross Domestic Product Price Index : annualized data for first quarter of 0.7% are better than market expectation of 0.5%. Previously posted results were standing at 0.9%.

Friday, April 29, 2016 :

  1. German Retail Sales: released results for March show further decreasing trend in retail sales to -1.1% on monthly basis compared to -0.3% posted for previous month. Figure is significantly below market expectation of 0.4%.
  2. German Retail Sales: released results for March show modest increase in retail sales of 0.7% on a yearly basis, however, figure is significantly lower of 5.5% posted previously. It is also less then market expectation of 2.7%.
  3. Euro-Zone Unemployment Rate: results for March show quite modest decrease in EU unemployment to 10.2% from 10.4% posted previously. Figure is modestly better then market consensus of 10.3%.
  4. Euro-Zone Consumer Price Index Estimate: results for April show further deflator trend of -0.2% on a yearly basis, compared to -0.1% posted previously. Market consensus was at -0.1%.
  5. Euro-Zone Consumer Price Index – Core: annualized results for April show decrease of core CPI to 0.8% from 1.0% previously posted. Figure is also below market expectations of 0.9%.
  6. Euro-Zone Gross Domestic Product (Q/Q): results for first quarter show modest increase in GDP of 0.6% on a quarterly basis. Previously indicator was standing at 0.3%, while market consensus was at 0.4%.
  7. Euro-Zone Gross Domestic Product (Y/Y): posted annualized result of 1.6% on a yearly basis are better than market expectation of 1.4%. Result posted previously was 1.6%.
  8. US Personal Income: results for March show modest increase in personal income of 0.4% compared to 0.2% posted previously. Figure is above market consensus of 0.3%.
  9. US Personal Spending: results for March show modest decrease of personal spending to 0.1% compared to 0.2% posted previously, which was also market expectation.
  10. US Real Personal Spending: results from March show modest decrease to 0.0% compared to 0.3% posted previously.
  11. US Personal Consumption Expenditure Core (YoY): very modest decrease in indicator during March to 1.6% from 1.7% posted previously. Outputted results were fully in line with market consensus.
  12. US University of Michigan Confidence: forecasted result for April show modest decrease to 89.0 from 89.7 previously posted. Market expectation was standing at 90.0

 

FORECAST FOR THE COMING WEEK

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

Fundamentals 2-6 May

Next week should be relatively calm, at least, when fundamentals are in question. US FED`s Bullard, Kaplan, Lockhart and Williams will speak at Stanford on Friday, where it could be expected to hear some insights from latest FOMC meeting held last week.

US ISM Manufacturing: results for April will be posted, together with ISM Prices Paid. Previously, ISM Manufacturing indicator was standing at 51.8.

European Commission Economic Forecast: although this forecast will not influence any move in markets, it provides some valuable insights on potential future European economic outcome. Full report, when published, can be found under : Europa.eu.

Euro-Zone Retail Sales: results for March will be posted both on m/m and y/y basis. Previously posted result was 2.4% y/y.

US ADP Employment Change: results for April will be posted. Currently it represents significant indicator considering FED`s target on full employment. Previously posted result was 200K.

US Trade Balance: results for March will be posted. Previously, this trade deficit has been at level of -$47.1b.

US ISM Non-Manufacturing/Services Composite: results for April will be posted. Result for previous month was 54.5.

US Factory Orders: results for March will be posted. Previously posted change was -1.7% indicating slowdown in new US factory orders.

US Durable Goods Orders : April forecast will be posted. Previously actual  result was 0.8%.

US Unemployment Rate: results for April will be posted. Very important indicator to watch considering FEDs targeting full employment. Current unemployment rate is 5.0%.

US Change in Non-farm Payrolls: results for April will be posted. Previously, indicator was standing at 215K.

 

EUR/USD Technical Analysis

After reaching short term support level at 1.12, the pair end week reaching long term resistance level at 1.1450. This level has been tested several times during Y2015.

Break from 1.1450 would lead to new highs not reached for more than a year.  Next step might be seen at levels of 1.16 up to 1.20 which is the level tested during Y2012.

On the opposite side, break from 1.1450 would lead to short term resistance at 1.1390 and 1.133 down to 1.12 .

Relative Strength Index over 14-day period is currently at levels around 60, not indicating on potential trend reversal.

Graph 2-6 May

 

 

 

 

 

 

 

 

 

 

 

 

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

For the next week I am neutral on EUR/USD

Latest released data on EU economy are posting relatively good results on GDP growth and employment. Its major problem represents strong deflator trend which ECB is struggling for a long time to revert. ECB measures still haven’t give expected results, however, President Draghi is quite confident that some effects are going to be visible soon.  At the same time, US GDP figures for first quarter are showing quite slow growth of US economy, with rise in household income and spending, indicating possible increase in CPI figures in the near future. FED is still on hold to raise interest rates. Developments both in US and world economy will be taken in into account before decision of tightening monetary policy.

During previous week currency pair tested short term resistance at 1.12, before trend has been reverted, finishing week at level of 1.1450. Levels above 1.1450 has not been tested recently so move above this level might lead to long term resistance at  1.16 up to 1.20 which has been tested during Y2012. However, considering that next week will be relatively calm concerning  fundamental results, there is a possibility that market will try to test again short term resistance levels at 1.1390 and 1.133. However, for the next week I am staying neutral on currency pair.

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