EUR USD Weekly Forecast May 16-20 2016

Is there a possibility for June FED rate hike? Although markets are still uncertain over next FEDs move, during last two weeks we have seen increased number of comments from Fed officials and voting members supporting near future rate increase. After Atlanta Chief Lockhart called it “real option” and San Francisco Chief Williams saying to give his voice during June meeting, last week Boston FED Chief Rosengren and Kansas City Fed George, joined the rate-increase view. However, what is certain, is that FED will make its decision based on employment and inflation figures development. In this sense week ahead is going to be interesting one, bringing both US April CPI figures on Tuesday and Minutes of the April FOMC meeting on Wednesday. After significant increase in wages posted previously, data released during last week show also significant shift in retail sales to 1.3% in April, compared to -0.4% previously posted. Currently, fundamentals are moving in favor of rate increase, however, whether this is also going to be FEDs decision during June meeting is about to be seen.

As per ECB officials, imposed monetary measures still need time to give results. Although we have seen previously some modest but still positive results through GDP and employment figures, inflation is still not moving in desired direction. Forecast of Euro-Zone CPI figures for April will be posted during next week, providing some insights in current developments on deflation trend. First quarter posted GDP for Euro-Zone was standing at 1.5% y/y. Last week released data on German factory orders revealed strongest shift since June 2015, reaching 1.7% on a yearly basis. However, such strong move was supported by global trade as a compensation for drop in domestic demand. On the other side, German IP surprisingly decreased in March to 0.3% y/y, while trade balance surplus of Eur26.0b was mostly driven by significant drop in imports.

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The currency pair EUR/USD finished week at level  1.1308.

 

FUNDAMENTALS WEEKLY UPDATE : 

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

Monday , May 09, 2016 :

  1. German Factory Orders: results for March show significant increase in factory orders to 1.7% compared to same period last year. Result posted for February was 0.7%, while market consensus was at 0.1%.
  2. Euro-Zone Sentix Investor Confidence: a survey on sentiment of investors, increased for 5 points during May reaching 6.2, above market consensus of 6.0, which is quite positive for Euro-Zone economy.
  3. US Labor Market Conditions Index Change: results for April show decrease in labor Market Conditions Index of -0.9, compared to -2.1 posted previously. However, figure is relatively close to market consensus at -1.0.

Tuesday, May 10, 2016 :

  1. German Industrial Production: results for March show significant drop in IP to 0.3% compared to same period last year. Figure has been huge surprise for market considering their expectations at 1.1%, but also taking into account February IP at 2.0% y/y.
  2. German Trade Balance: results for March show significant increase in trade surplus of Eur26.0b, compared to 20.2b posted previously and Eur20.6b expected by market. Trade balance figures also show that surplus is mostly driven by significant drop in imports of -2.3% m/m, while export were standing at 1.9% m/m.
  3. US Wholesale Inventories: results for March show modest increase in inventories to 0.1% which is fully in line with market expectations. Previously posted figure was -0.5%.

Wednesday, May 11, 2016 :

  1. US DOE Crude Oil Inventories: results for previous week show significant decrease in oil inventories for -3410K. Market consensus was at 750K.
  2. US Monthly Budget Statement: results for April show modest decrease in budget to $106.5b from $156.7b previously posted. Figure is also below market consensus of $110.0b.

Thursday, May 12, 2016 :

  1. US Initial Jobless Claims: results for previous week show modest increase in jobless claims to 294K from 274K previously posted. Figure is also above market expectation at 270K.

Friday, May 13, 2016 :

  1. German Consumer Price Index: forecasted result for April show no change from previously posted -0.1%. Figure is also fully in line with market consensus.
  2. German Gross Domestic Product: preliminary result for first quarter show modest decrease in GDP to 1.3% from 2.1% previously posted. Figure is above market expectation at 1.2%.
  3. Euro-Zone Gross Domestic Product: preliminary results for first quarter show modest decrease of GDP to 1.5% on a yearly basis from 1.6% previously posted which was also market expectation. On a quarterly basis GDP figure is also lower by 0.1%, reaching 0.5% in 1Q, down from 0.6% previously released.
  4. US Advance Retail Sales: results for April show significant increase in retail sales to 1.3% from -0.4% previously released, and above market consensus at 0.8%.
  5. University of Michigan Confidence: preliminary results for May show modest increase in confidence to 95.8 from 89.0 previously posted and above market expectation at 89.5.

 

FORECAST FOR THE COMING WEEK

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

Fundamentals 16-20 May

Wednesday brings US FED release Minutes from latest FOMC meeting held on April 26-27th. Extremely important event to watch. Minutes will reveal more insights on FOMC members view on current economic developments and potential next FEDs move.

US Consumer Price Index: results for April will be posted both on monthly and yearly basis. Extremely important indicator to watch now, considering its implications on further tightening of US monetary policy. CPI results posted for March were 0.1% m/m and 0.9%y/y, while core inflation was standing at 1.1% on a yearly basis.

US Industrial Production: results for April will be posted. Previously released result was -0.6%, while market is expecting to see some improvement in IP, reaching 0.3%.

Euro-Zone Consumer Price Index: forecast for April will be posted on a yearly basis. Important indicator to watch considering measures imposed by ECB aimed to cope with deflation. Official CPI posted for March is -0.2%, with core inflation of 0.7%.

 

EUR/USD Technical Analysis

After shortly reaching long term resistance level at 1.1450, currency pair reverted trend and finished week at level of 1.13.

Clear break of long term resistance at 1.1450 would open a way for testing next long term resistance level at 1.16 and 1.20.

On the opposite side, short term support levels are at 1.1390 and 1.133 down to 1.12 and 1.11.

Relative Strength Index over 14-day period is currently at levels around 40, not indicating on potential current trend reversal.

Graph 16-20 May

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

For the next week I am neutral on EUR/USD

Many monetary easing measures imposed by central banks of world strongest economies influenced to some extent markets to neglect actual fundamentals in expectation of imposed measures outcome. Certainly, central player was FED. It seems that dovish talks of FEDs officials during previous period are now switched to more voices for rate increase during June meeting. Improvements in employment, wages and inflation figures are supporting such view. April CPI will be posted on Tuesday, while next day will bring Minuets of April FOMC meeting, providing some insight on FOMC members view on current economic developments and eventually potential next FEDs move. On the other side, Euro-Zone is showing some quite modest signs of recovery, but it is still not clear whether imposed measures by ECB will manage to revert  deflation trend, which was their major purpose of introduction. ECB officials are asking for more time.

During previous week currency pair shortly tested long term resistance level at 1.1450 and immediately reverted trend finishing week at 1.13 short term support. Although break of 1.1450 would open way for long term resistance at 1.16, I am much more on bearish side expecting to see currency pair in range 1.1450 down to 1.12 during next week. However, important results are going to be released during next week, so I will stay on neutral side.

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

 

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