EUR USD Weekly Forecast

How realistic is expectation for the US to create 200K of new jobs every month? As per posted results for April, there is 40K decrease in nonfarm payrolls to 160K, from 215K previously posted. There has not been any change in unemployment rate, and it still stands at 5%. Drop in April job report surprised market analysis, now questioning whether this might be viewed as first sign of easing in the US job growth. However, major concern rely in possibility that job market slowdown could make an impact on FEDs decision to further postpone increase in interest rates. Regardless of posted drop in new jobs for previous month, which is much more question of how realistic is to create 200K jobs each month rather than conclusion on a trend, increase in wages might be quite soon reflected in inflation figures. By some analysts this could be seen as potential trigger for FEDs rate increase soon. During last week we have seen some comments from FED officials on possible rate move during June meeting, as Atlanta Chief Lockhart called it a “real option”, while San Francisco FED Chief Williams is noting that rate hike will have his voice during June meeting, considering that economy is moving as per FEDs expectations. Such statements should be taken with cautiousness, considering that we have seen during recent period how market is reacting on unfulfilled expectations.

ECB is currently targeting debt reduction in the environment of lowest interest rates. As per ECB statement, sovereign debt within Euro area is considerably high, standing at 93% of GDP which represents significant risk, making economies resilient to shocks.  Structural reforms should help bringing ratio to 84% during period of next ten years. During previous week European Commission released its quarterly economic forecast for EU area. Further growth is expected at modest pace, with GDP reaching 1.6% for Euro area and 1.8% for the EU in Y2016. Further improvements are expected in labor market while energy prices will further impact inflation. Among other risks, surrounding economic outlook, there has been mentioned easing of emerging markets growth, geopolitical tensions and forthcoming UK referendum. Although recently posted results are showing that measures imposed by ECB are supporting steady growth, they are still unable to push inflation up and revert deflation trend. As per released results last week, Euro-zone retail sales at 2.1% y/y are showing some easing, dropping for the first time during last five months.

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The currency pair EUR/USD finished week at level  1.1405.

 

FUNDAMENTALS WEEKLY UPDATE : 

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

Monday , May 02, 2016 :

  1. US Markit Manufacturing PMI : forecasted result for April show no change from 50.8 previously posted, which is fully in line with market expectations.
  2. US ISM Manufacturing: result for April show modest decrease in sentiment to 50.8 from previously posted 51.8. Market consensus was at 51.4.
  3. US ISM Prices Paid: result for April show modest increase in prices paid to 59 from 51.5 previously posted. Market expectation was at 52.0.

Tuesday, May 03, 2016 :

  1. European Commission Economic Forecasts: forecasted Euro-area growth of 1.6% and EU growth of 1.8% during Y2016. GDP of Euro area is forecasted to grow at modest rates till Y2017. Inflation remains driven by energy prices.

Wednesday, May 04, 2016 :

  1. Euro-Zone Retail Sales: results for March show modest decrease in retail sales to 2.1% on a yearly basis, compared with 2.7% released in February. Figure is also below market consensus at 2.6%.
  2. US ADP Employment Change: results for April show modest decrease in employment to 156K below market expectation of 195K. Previously posted result was standing at 200K.
  3. US Trade Balance: results for March of -$40,44b exceeded market expectations of -$41.1b. Figure is also significantly better from -$47.1b previously posted.
  4. US ISM Non-Manufacturing/Services Composite: results for April show improvement in sentiment to 55.7 which is better from both market consensus at 54.8 and 54.5 previously posted.
  5. US Factory Orders: results for March show significant improvement in factory orders which has increased for 1.1% compared to previous month when indicator was standing at -1.7%. Figure is also above market consensus at 0.6%.
  6. US Durable Goods Orders: forecasted March figure show no change from 0.8% previously posted. Figure is also fully in line with market expectation.
  7. US DOE Crude Oil Inventories: posted figure show significant increase in crude oil inventories to 2784k from 1999k posted for previous week, and is also significantly higher than market expectation at 750k.

Thursday, May 05, 2016 :

  1. US Initial Jobless Claims: results for previous week show significant increase in jobless claims to 274K from 257K posted previously and 260K expected by market.

Friday, May 06, 2016 :

  1. Markit Germany Construction PMI: results for April show modest decrease in sentiment to 53.4 compared to 55.8 posted previously.
  2. Markit Germany Retail PMI: results for April show modest decrease in sentiment to 51.0 compared to 54.1 posted previously.
  3. US Unemployment rate: results for April show no change in unemployment of 5% . Market consensus has been at 4.9%.
  4. US Change in Non-farm Payrolls: results for April show decrease to 160K from 215K previously posted. Market expectation was at 200K.
  5. US Change in Private Payrolls: results for April show modest decrease to 171K from 195K previously posted, and below market expectation at 190K.
  6. US Average Hourly Earnings: results for April show modest increase of 2.5% on a yearly basis, compared to 2.3% posted previously. Figure is also above market expectation of 2.4%.
  7. US Consumer Credit: results for March show significant increase of consumer credit to $29.674b, compared to $14.145b posted previously and $16.0b expected by market.

 

FORECAST FOR THE COMING WEEK

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

Fundamentals 9-13 May

German Factory Orders: results for March will be posted showing changes in factory orders both on a monthly and yearly basis. Previously, change in indicator has been 0.5% compared to same period of last year.

US Labor Market Conditions Index Change: results for April will be released showing change in index from -2.1 previously posted. Considering FEDs target of full employment, this indicator should provide some further insight in current labor market conditions.

German Industrial Production: results for March will be posted both on monthly and yearly basis, showing changes in IP. Previously indicator was standing at 1.3% on a yearly basis.

German Trade Balance: results for March will be released showing changes in German trade balance components. Previously, positive balance was standing at EUR20.3b.

US Wholesale Inventories: results for March will be released showing changes in inventories of wholesalers. Previously, indicator was standing at -0.5%.

Euro-Zone Industrial Production: result for March will be posted showing changes in EU IP both on monthly and yearly basis. IP was at 0.8% on a yearly basis during previous month.

German Gross Domestic Product: preliminary results for first quarter will be posted on a yearly and quarterly basis. Annual growth rate previously posted was 2.1%.

Euro-Zone Gross Domestic Product: preliminary results for first quarter will be posted on a yearly and quarterly basis. Annual growth rate previously posted was 1.6%.

US Advance Retail Sales: results for April will be released showing changes in sales to consumers from previous month. Previously, indicator was at -0.3%.

 

 

EUR/USD Technical Analysis

During previous week currency pair tested long term resistance level at 1.16, without further strength to break it. Currency pair reverted and finished week at level of 1.14.

Break of long term resistance at 1.16 would open a way for testing next long term resistance level at 1.20.

Long term resistance level is also found at 1.1450, which has been tested on several occasions during Y2015.

On the opposite side, short term support levels are 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 current trend reversal.

Graph 9-13 May

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

For the next week I am bullish on EUR/USD

Last week has been relatively calm when fundamentals are in question. Posted decrease in new jobs influenced market to revisit their expectations both on US job growth trend and its potential implications on FEDs rate move. We have also seen few FED officials signaling that rate increase might occur during June meeting. At this point, I am of opinion that it is still too early to draw conclusions on both topics.  As for ECB, posted results during previous periods are showing EU steady growth, while for the next week German IP, CPI and GDP are scheduled to be released, where I am expecting some positive developments.

During previous week currency pair tested long term resistance level at 1.16, without further strength to break it, and currency pair finished week at level of 1.14. Although break of 1.16 would open a way for testing next long term resistance at 1.20, based on fundamentals, I don’t believe that this could happen during next week. I see much more realistic scenario that market will try again to test 1.1450 and 1.16 resistance levels , as well as 1.14 support level.

Do you want to know what investment banks think of the EUR / USD? Check out the Eur Usd 2016 Forecast

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