EUR USD Weekly Forecast May 30- June 03 2016.

To be or not to be in June? During last couple of weeks we have seen increasing number of FOMC members voicing rate increase during June or July meetings, as data released during previous period  are supporting such decision. Feds Chair Yellen also supported this view on Friday during speech at Harvard University. Taking into account high possibility that targeted 2% inflation until the year end will be reached, while at the same time, unemployment figures are expected to decrease further heading toward full employment, June strengthening of monetary policy is almost sure. However, many Fed officials are mentioning July as a month for rate hike considering that referendum in Britain is scheduled only one week after FOMC meeting. Brexit is one of the recognized risks for US economic outlook during last FOMC meeting held in April and is also going to be one of topics that will be discussed on June meeting. But the actual question is how it can affect current course of US economy and whether one moth difference in timing of action could make any actual change? If Britain vote “Yes” there could be expected some market reaction in term of Pound depreciation, but considering that succession period would last for next two years, there is enough time to adjust monetary policies if necessary. Anyhow, week ahead is going to be one of the important weeks prior to FOMC meeting considering that many important data on US economy will be released including unemployment rate, hourly earnings and non-farm payrolls, based on which Feds rate decision is much more dependent on.

European Central Bank rate decision meeting will be held on Thursday. Taking into account significant measures imposed by ECB since the beginning of the year, including negative rates followed with additional stimulus that is to be implemented during June, at this moment it cannot be expected that ECB will make any changes to its policy. Such conclusion might be drawn also from released minutes from latest policy meeting and from comments from ECB officials that implemented measures need time to reveal their full effect. As per released results, EU economy is posting modest and slow growth, however, deflation trend is still evident.

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The currency pair EUR/USD finished week at level  1.1115.

 

FUNDAMENTALS WEEKLY UPDATE : 

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

Monday , May 23, 2016 :

  1. Market/BME Germany Manufacturing PMI: results for May show modest increase in manufacturing sentiment to 52.4 from 51.8 previously posted and 52 expected by market.
  2. Markit Germany Services PMI: results in May show increase in sentiment to 55.2 from 54.5 previously posted and above market consensus at 54.5.
  3. Markit/BME Germany Composite PMI: results for May show increase of sentiment to 54.7 from 53.6 previously posted and above 53.9 expected by market.
  4. Markit Euro zone Manufacturing PMI: May results show quite modest decrease in manufacturing sentiment to 51.5 from 51.7 posted previously and 51.9 expected by market.
  5. Markit Euro zone Services PMI: there has not been change in sentiment from 53.1 previously posted, however, figure is quite modestly below market consensus at 53.2.
  6. Markit Euro zone Composite PMI: there is very modest decrease in sentiment to 52.9 from previous 53. Figure is also below market consensus at 53.2.
  7. US Markit Manufacturing PMI: index is quite modestly down to 50.5 from previous 50.8 and also below market consensus at 51.0.
  8. Euro zone Consumer Confidence is increased in May with index reaching -7 up from -9.3 posted previously and above market expectations of -9.

Tuesday, May 24, 2016 :

  1. German Gross Domestic Product: second revision confirmed previously posted figures. German GDP for first quarter is up for 0.7% compared to previous quarter. Non seasonally adjusted GDP on a yearly basis stands at 1.3%, while with working day adjustments GDP is up for 1.6% compared to same period of previous year.
  2. German ZEW Survey: index showing current sentiment is significantly up to 53.1 in May from 47.7 posted previously, and also above market consensus at 49.0. However, economic sentiment for future period unexpectedly dropped to 6.4 from 11.2 previously posted, and also significantly below market consensus at 12.0.
  3. Euro Zone ZEW Survey on economic sentiment significantly dropped in May to 16.8 from previous release of 21.5.
  4. US New Home Sales: released figures absolutely beaten market expectation with increase of 16.6% in April on a monthly basis, compared to -1.5% posted for March, and above market consensus at 2.0%.

Wednesday, May 25, 2016 :

  1. German GfK Consumer Confidence Survey: released figures for June show increase of consumer confidence in Germany to 9.8 from previous release of 9.7. Market did not expect any change in sentiment.
  2. German IFO index: results for May show increase in business conditions and expectations. Business climate index is modestly increased to 107.7 from previous 106.6 and also above market consensus of 106.8. Current Assessment is up to 114.2 from 113.2 previously released, while Expectations are increased to 101.6 from 100.5 previously posted.
  3. US Goods Trade Balance: results for April show modest increase in trade deficit to $-57.5b compared to $-57.1b posted for March. Market was expecting to see increase in deficit to $-60.0b.
  4. US House Price Index: results posted for March show modest increase of 0.7% on a monthly basis, compared to 0.5% posted previously and above market consensus of 0.4%.
  5. US Markit PMI: index for Services is modestly down in May to 51.2 from 52.8 posted previously, but also below market expectations of increase in sentiment to 53.1. Composite index is also down to 50.8 from previous release of 52.8.

Thursday, May 26, 2016 :

  1. Initial jobless Claims for previous week surprisingly dropped to 268k from 278k posted for week before. Figure is also better from market expectations of 275k.
  2. US Durable Goods Orders: initial figure for April shows significant increase in orders supported by transportation orders to 3.4% from 1.9% previously posted, and also significantly above market consensus at 0.5%. Excluding transportation, durable goods orders were up for modest 0.4%.
  3. US Pending Home Sales are significantly increased during April to 5.1% compared to previous month and above market consensus of 0.7%. Compared to same period of last year, pending home sales are up for 2.9%.

Friday, May 27, 2016 :

  1. US Gross Domestic Product: released annualized figure for first quarter of this year show modest increase in GDP to 0.8% from 0.5% posted initially. Figure is slightly below market consensus at 0.9%.
  2. US Personal Consumption Expenditure: revised figures for first quarter show no change from initial release of 2.1% on a quarterly basis.
  3. US University of Michigan Confidence: data for May show modest decrease in sentiment to 94.7 from 95.8 posted previously. Figure is also below market consensus at 95.5.

 

FORECAST FOR THE COMING WEEK

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

Fundamentals end MayWeek ahead is going to be quite interesting one on FX markets considering number of important fundamentals to be released. European Central Bank will start season of central banks meetings and rate decisions on Thursday. Although, it is usually significant event that is moving market, taking into account latest rhetoric from ECB officials, it could not be expected that any change in rates will occur during this meeting.

German Consumer Price Index: results for May will be posted showing changes in prices from previous month. After move in March of 0.8%, CPI dropped during April again in negative territory reaching -0.4%. Market is expecting CPI to reach 0.3% in May. At the same time, yearly inflation for April was -0.1%.

German Unemployment Rate: results for May will be posted. However, considering that German unemployment rate is relatively steady with slow down trend, market is not expecting to see any change in rate from 6.2% posted for April.

Euro zone Consumer Price Index Estimate: initial figure for May will be posted. Very important indicator to watch considering deflation trend in EU countries. ECB implemented monetary measures did not provide expected results. During previous ECB meeting, expected inflation of near, but close to 2% is forecasted to be reached during years 2017 and 2018. CPI in April was -0.2% while market is expecting modest improvement to -0.1%.

Euro zone Unemployment Rate: results for April will be posted. Considering that unemployment decreasing trend is evident within EU countries, market is not expecting to see some changes from previously posted 10.2%.

US Core Personal Consumption Expenditure: results for April will be posted on a monthly and yearly basis. Considering Feds targeted 2% inflation until year end, this is one of a set of indicators to watch as indication of future inflation developments. Core PCE for March was 0.1% m/m and 1.6%y/y, while market is expecting modest increase in index of 0.2% m/m in April, but without change on a yearly basis.

Federal Reserve Beige Book: is providing information on current situation in US general business environment and sentiment. Although release of Beige book usually don’t imply any significant market reaction, it is valuable source of current development in US economy.

US Unemployment rate: results for May will be posted. This is currently extremely important indicator to watch, considering Feds targeting of full employment. During last two months indicator was standing at 5.0%, while market is now expecting its further modest decrease to 4.9%.

US Change in Non-farm Payrolls:  results for May will be posted. This is also currently one of extremely important indicators to watch, whose increase would imply on future inflation trend and will also have implications on Fed decision to raise interest rates. Non-farm payrolls were standing at 160K during April, down from 215k posted for March.

US Average Hourly Earnings: results for May will be posted both on monthly and yearly basis. Currently, this is also one of the indicators closely watched by market, indicating on future spending and inflation trend. Previously, indicator was standing at 0.3%m/m and 2.5% y/y, while market is not expecting any significant change from previously posted figures.

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 brought a lot of volatility of currency pair, considering some strong fundamentals that has been released on US economy, followed with Fed officials supporting view on June/July rate hike.  After speech of Feds Chair Yellen on Friday, currency pair finished weak at level of 1.1115 from 1.12 traded previously.

Most of the days during previous week, EUR/USD was testing resistance level at 1.12, but without strength to break it trend is reverted toward short term support at 1.113 and 1.110.

Break of 1.113 and 1.11 support would lead to next support levels found at 1.105 down to 1.096 and 1.082 which is long term support level.

On the opposite side, short term resistance levels are at 1.12, 1.132 and 1.1390.

Relative Strength Index over 14-day period is currently moving around 35, quite close to level which would indicate clear oversold moment.

 EUR/USD Chart :

Chart end May

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

Check also Euro Dollar History Graph.

 

For the next week I am bearish on EUR/USD

During next week significant number of quite important data will be released for US economy that would be of importance for Fed  when deciding on next policy move. Market is expecting further modest decrease of unemployment rate and increase in wages and earnings. On the other side, although ECB meeting will be held on Thursday, I am not expecting to see any further policy actions, considering that CSPP will start being operational during June.

During previous week we have seen push of dollar from 1.12 levels down to 1.11 after Fed Chair Yellen confirmed possibility of June/July rate hike. Break of 1.11 levels might lead currency pair testing new support levels at 1.105 or even 1.096. On the opposite side, there is possibility for currency pair to test again 1.12 resistance during next week, however I am staying long term on EUR/USD bearish 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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