EUR/USD Weekly Forecast 21-25 March 2016

EUR/USD Weekly Forecast 

According to analysts, the sentiment for the Greenback is turning bearish due to the decrease in inflation forecasts to 1.2% from 1.6%, leaving the dollar vulnerable to more losses if the future. Meanwhile, EU exporters are heavily dependent on the German Dax, which fell 2.10% last week on Thursday but managed to regain some ground on Friday. A stronger Euro increases the price of exported good and makes them less desirable for buyers. Strategists from Western Union Business Solutions noted that EUR/USD might attempt a rally toward the highs around 1.13-1.14 Dollar area.

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USD FEDLast week the Federal Reserve forecasted that the core inflation, without the volatile elements like food and energy prices, might be 1.6% in 2016. This is important to take note of because central banks watch the CPI carefully because it is a leading indicator for future inflation. Furthermore, the reading for Personal consumption expenditures price index for January revealed an increase of 1.67% on a year-to-year basis. Fed’s expectations, based on that text, are that Core inflation will decrease and after that will stabilize over the course of 2016. But there is one problem, this forecast is in contrast with Yellen’s narrative that the decline in unemployment will lead to increase in inflation and thus to lead to just two interest rate hikes this year.

soc-gen1According to Albert Edwards, from Societe Generale, the growth in core inflation is caused by firms facing a margin squeeze, due to the decreased productivity readings, and are raising prices to keep turnout up. He stated further that the cycle might be nearing its end, and a Japanese-style deflation will follow it.

On the other side is the public Fed statements, which seems to be inconsistent with the upturns in high-frequency data such as the jobless claims released on Thursday. Whatever the case, there is no concrete evidence to point on which is the right side, regarding the Inflation forecasts.

EUR/USD daily graph with support and resistance lines on it. Click to enlarge:

  1. US. Existing Home Sales: Monday, 14:00. In its previous reading, the Existing-home sales increased in January to the highest annual rate in six months. With the only region seeing a decline was The West. All completed home transactions rose 0.4% to the annual rate of 5.47 million in January with the December reading being 5.45 million. The previous reading also marked the biggest year-to-year gain (11.00 %) since July when the gain was 16.30%. Now forecasts are pointing to a decrease to 5.32 million.
  2. Germany Manufacturing PMI: Tuesday, 8:30. The previous economic activity reading decreased for a second month in February, according to the surveyed managers demand for exports fell because of China. The studies conveyed further that the modest recovering is losing momentum. Expectations for this weeks are in a favor of a slight increase by 0.4 to 50.9 from 50.5 in the previous results.
  3. German Ifo Business Climate: Tuesday, 9:30. In the last reading, German business confidence decreased for a third month in a sign that companies in EU’s largest economy are growing more concerned with reducing global growth continues to hurt the financial markets. The Ifo institute’s business climate index moved to 105.7 in February from 107.3 in January. China’s recovering economy from the stress in January is weighing on global trade and hurting German exporters, with the report showing net trade dragged on economic growth last quarter. Expectations for the Tuesday meeting are for a slight increase to 106.1.
  4. German ZEW Economic Sentiment: Tuesday, 10:30. In the previous reading, the ZEW Indicator of Economic Sentiment for Germany has declined for the second consecutive time in February 2016. The index has contracted by 9.2 points compared to the previous month, in the last reading, it was standing at 1.0 points. The decrease in the world economy growth and the uncertain prices of the falling oil price affected the ZEW Indicator of Economic Sentiment negatively in a negative manner. Analysts are expecting a significant increase to 6.3 from the previous results.
  5. US Crude Oil Inventories: Wednesday, 14:30. In the last release Oil prices firmed on an announcement will hold a meeting in Qatar in order discussing a possible proposal to freeze output and on growing signs of a diminution in U.S. crude production. Contractors both in and out of the Organization of the Petroleum Exporting Countries will gather in the capital Doha on April 17.
  6. US. Core Durable Goods Orders: Thursday, 12:30. In the last release orders for U.S. capital goods made a comeback in January since June 2014, representing a pause in manufacturing’s sinking. Bookings for non-military equipment without including commercial aircraft jumped 3.9 percent, after the 3.7% fall in December that was weaker than previously reported, data from the Commerce Department.
  7. US. Unemployment Claims: Thursday, 12:30. In the last the measurement of Americans filing for unemployment benefits turn-upped from a five-month low but remained below a level correlated with a strengthening labor market. Initial claims for state unemployment benefits expanded 7,000 to a seasonally adjusted 265,000 for the week ending on March 12, the Labor Department.
  8. USD Final GDP: Friday,12:30. In the last reading of gross domestic product inched at an annual rate of 2.0 percent in the 3th Q4 of 2015, according to the “third” estimate the second quarter, real GDP increased 3.9 percent.

* All times are GMT

EUR/USD Technical Analysis

In the first three days of last week prices consolidated within the flag, formation started from the previous week’s Friday until the end of Wednesday were it made a move to the upside breaking the 1.1202 resistance, which held the price in the past week. The Wednesday Spike reached and broke to the upside on Thursday, the 1.12414 & 1.12528 resistance area, reaching as high as 1.13426. After that move it continued to consolidate and move between the 1.13426 high and the 1.12528 & 1.12414 previous resistance, now support area.

Technical lines from top to bottom:

We have to take note of the 1.1342 resistance which was able to hold last week’s bullish move, which also was able to stop the in 9th of February move to the upside and also managed to keep the second attempt which reached as high as 1.1377 but the Bulls lost ground and price headed toward the downside.

The next significant resistance it positioned at the 1.30rea which a psychological area and had acted numerous times during history as support and resistance.

After that, it’s important to remember the 1.12528 & 1.12414 area which marks the lowest point in last week’s hard move.

EUR/USD hourly graph with support/resistance, trendlines, and 100SMA on it. Click to enlarge:

I am bearish on EUR/USD

Looking at the bigger picture and considering that the sharp move that occurred at the end of the week. I assume that it is likely that at the beginning of the week the price will consolidate to the downside. On Monday, this scenario is most probable as no high impact events regarding the pair will occur.

On the other hand, some positive news will be able to give a fairly significant move to the upside with the possibility of reaching the 1.15 and 1.16 areas.

The Most Important 2 Minutes of Janet Yellen’s Statement

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