EUR USD Weekly Forecast May 23-27 2016.

Market expectations on June rate hike has been heated after release of April FOMC meeting Minutes during last week. Several important points has been revealed regarding FOMC members view on further strengthening of monetary policy as well as external risks that might negatively impact economic outlook. Rate increase during June meeting is generally left as an option providing “flexibility” to FED members to act depending on future economic developments in segment of labor, inflation and economic output. Global economic developments, recognized as threat to US economic outlook during previous meeting, are now switched to Brexit referendum and China currency volatility. Released economic data on US economy are moving in positive direction and in support to FEDs decision. Unemployment rate is down to 5% continuously for almost last seven months with expectations for further modest decrease. Inflation figures posted during previous week show further raise of index in April to 1.1% on a yearly basis, increasing possibility that FEDs targeted 2% might be reached by the end of this year. Output of US economy for the first quarter has been 0.5% with expectation that during second quarter it might reach even 2.5%, as per Atlanta FED GDPNow forecasting model. How such developments are perceived by FED is up to be seen during next meeting. However, it needs to be taken into consideration that Brexit referendum will take place  week after FOMC meeting, adding some possibility for rate increase to be again postponed for July.

Markets will not see any changes in ECB policy until additional stimulus measures, in terms of corporate bond purchases and long-term lending to banks, are fully implemented. Accounts of the monetary policy meeting has been released during last week, confirming ECB members view that implemented measures need time to reveal in full in the economy and that its full effects can be expected in the future. It has been also noted that targeted inflation to “below but close to 2%” shall not be reached during this year, instead, forecast is expanded to years 2017 and 2018.

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The currency pair EUR/USD finished week at level  1.1221.

 

FUNDAMENTALS WEEKLY UPDATE : 

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

Monday , May 16, 2016 :

  1. Net Long-Term Treasury International Capital flows in the US increased by $5.5b in March, reaching 78.1b from $72.6b previously posted.

Tuesday, May 17, 2016 :

  1. Euro-Zone Trade Balance: seasonally adjusted figures for March show quite modest increase in trade surplus of 22.3b from 20.6b posted previously. Result is also slightly higher from market consensus at 22.0b. Trade balance without adjustments stands at 28.6b from 19.0b previously posted.
  2. US Housing Starts: figures posted for April show significant increase of 6.6% compared to previous months -8.8%. Figure is also significantly above market expectation of 3.3%.
  3. US Building Permits: results for April show significant increase to 3.6% compared to previous months -8.6%, however, figure is modestly below market consensus at 5.5%.
  4. US Consumer Price Index: US inflation is showing further increase trend, reaching 0.4% in April compared to previous month of 0.1%, leading to yearly inflation to 1.1% from 0.9% posted previously. Core inflation was quite modestly down in April to 2.1% on a yearly basis from 2.2% posted in March. Released yearly CPI figures were fully in line with market expectations.
  5. US Average Weekly Earnings: posted figures for April show modest decrease in weekly earnings to 0.2% on a yearly basis, from 1.1% posted for previous month.
  6. US Industrial Production: April figures show significant increase in IP to 0.7% from -0.9% posted previously. Figure was also significantly above market expectation at 0.3%.

Wednesday, May 18, 2016 :

  1. Euro-Zone Consumer Price Index: April figures show no change in inflation figures from previously posted, hence, April CPI was at -0.2% on a yearly basis, with 0.0% monthly change. Core inflation is also unchanged from level of 0.7% on a yearly basis. CPI during March was 0.0%.

Thursday, May 19, 2016 :

  1. US Initial Jobless Claims: released results for previous week show modest decrease of 16K in jobless claims, reaching 278K from 294K posted previously. Figure is slightly above market consensus at 275K.
  2. Philadelphia Fed Manufacturing Index unexpectedly dropped to -1.8 for May. Result is lower from previously posted -1.6, and well below market expectations at 3.5.
  3. US Leading Indicators: results for April show significant increase in index to 0.6% from 0.2% posted previously. Result is also above market expectation of 0.4%.

Friday, May 20, 2016 :

  1. Euro-Zone Current Account: seasonally adjusted current account surplus is increased for March to 27.3b from 19.2b in February. Released surplus without adjustments is 32.3b from 11.2b previously posted.
  2. US Existing Home Sales: released results for April show modest increase in home sales to 1.7% compared to previous month 5.1%. In nominal figures existing home sales reached 5.45m from 5.33m posted previously. Posted figures are above market expectation of 5.40m or 1.3% increase on a monthly basis.

 

FORECAST FOR THE COMING WEEK

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

Fundamentals 23-27MayGerman Gross Domestic Product: results will be published on a yearly and quarterly basis bringing information on output of German economy for first quarter. Market is expecting to see German GDP at 1.5% on a yearly basis.

US New Home Sales: results for April will be posted showing change on a monthly basis. After strong results posted during last week on US existing home sales, market is expecting to see similar developments also with new home sales, as a sign of general improvement of US economic sentiment and real-estate market. Market consensus is at 2.0% monthly change from -1.5% previously posted.

US Advance Goods Trade Balance:  results for April will be released showing changes in trade deficit of goods from previously posted $-57b. Market is expecting further increase in deficit to $-59.4b.

US Initial Jobless Claims: after significant increase in US jobless claims, reaching 294K, at beginning of May, during previous week claims returned to level of 278K. Market is expecting to see this week further relaxation in jobless claims to 273K.

US Durable Goods Orders: results for April will be posted. Market is expecting further slowdown in orders to 0.4% from 0.8% posted for March.

US Annualized Gross Domestic Product: preliminary results for first quarter will be posted showing output of US economy. GDP for previous quarter was standing at 0.5%, while market is expecting to see annualized GDP at 0.9%.

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

Release of FOMC minutes, exposing potential June rate hike, pushed US currency to levels of 1.12 against Euro, from 1.350 traded at the beginning of the week. Last two days of previous week currency pair was trading in a range of some 20 pips from 1.12 up to 1.1220.

Long term support level is found at 1.1200, tested on several occasions since the beginning of the year. Break of 1.12 support would lead to next short term supports at 1.113, 1.104 down to 1.096.

On the opposite side, short term resistance levels are at 1.13, 1.1390 and 1.1450.

Relative Strength Index over 14-day period is currently at levels below 40, indicating that current trend might not still be over.

 EUR/USD Chart :

Chart 23-27May

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

Check also Euro Dollar History Graph.

 

For the next week I am bullish on EUR/USD

Since last week markets are having much better perception on what is to be expected from both US and EU central bankers. FOMC meeting minutes revealed employment, CPI and GDP indicators as most crucial segments of US economy to watch at this time, considering that FED will base its future monetary decisions on developments in this segments of economy. Current economic data, FOMC minutes and previous comments from FED officials are all, to some extent, converging toward June rate hike. Brexit is still viewed as a risk to such decision, however, if not June, July might be awaited month. On the other side, after release of policy meeting minutes, it is clear that any new measures will not be imposed by ECB, until CSPP program is fully implemented. Also it has been confirmed by ECB members that near 2% target inflation will not be reached in the near future, which was obvious from released data on EU economy up to date.

During previous week we have seen relatively strong move of currency pair from 1.1350 levels down to long term support at 1.12. Break of 1.12 support would lead to next short term supports at 1.113, 1.104 down to 1.096, while on the opposite side, resistance levels can be found at 1.13, 1.1390 and 1.133. Although, at moment, fundamentals are supporting Dollar, during next week I see possibility of short term trend correction and currency pair moving in a relatively short range between 1.13 resistance and 1.12 support levels.

 

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

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