EUR/USD Weekly Forecast March 28 2016

Hints that the Federal Reserve could hike interest rates sooner than expected fuelled gains in the dollar.

The EUR has increase by 3.8% against the greenback since the beginning of the year and thus continues to pressure European exporters. Considering that U.K. and U.S. are trade partners, the strengthening euro will most likely take a toll on the region’s exports.

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After one year of high rating on the UN equities, strategist from J.P. Morgan have cut their stance to neutral after their efforts to find reasons to stay upbeat in the euro area. From their report released last week, analysts pointed out that stocks from the Eurozone have lost some of their value since a year ago, but at the same time remain overpriced.

The bank stated further that they have the support of ECB, as the increasing value of the euro is a common problem.

The over aggressive easing package announced in March, by the ECB, wasn’t able to stop euro’s bullish trend, with the currency currently trading around the highest level in 5 months. On the other hand, the dovish Fed statement last week, also helped the upward movement of the European equities, as it devaluated the dollar.

Analysts from J.P. Morgan also stated that weaker dollar will impact negatively the European equities with the EuroStoxx 50 having a strong negative correlation with the EUR/USD pair. Furthermore, FX strategists from J.P. Morgan have stated that they expect EUR/USD to increase toward the 1.15 till the end of 2016.

Market speculation over the possibility of a sooner than expected rate increase, fuelled gains for the greenback. The president of the Fed of St. Louis stated that the next rate increase might happen sooner than expected if the economy continues to evolve as expected. Federal funds futures, used for betting on central bank policies, showed a 12% possibility of a rate increase in the policy meeting in April, with the odds being 2% a month ago. Also the chance for a hike in the June’s meeting is 41%, compared with 18% thirty days ago.

According to trades lacklustre volume over increased the price swings which caused U.S. government bonds to pull back on Thursday. The yield on the 10-year Treasury note increased to 1.902%, from 1.873% Wednesday and 1.871% last Friday. Bond prices fall as yields rise.

 

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

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  1. U.S. CB Consumer Confidence: Tuesday, 14:00. The Conference Board Consumer Confidence Index, which had shown a moderate increase in January, declined in February. The Index now stands at 92.2 (1985=100), down from 97.8 in January. Expectations for March are for an increase up to 93.9.
  2. Fed Chair Yellen Speaks: Tuesday, 15:30. In her last statement Janet Yellen said she is increasingly confident that the economy is growing sufficiently to achieve labor-market improvement and higher inflation, laying the steps for a December interest-rate hike if data continues to hold up. “On balance, economic and financial information received since our October meeting has been consistent with our expectations of continued improvement in the labor market,” Yellen told the Economic Club of Washington, according to a text of her prepared remarks.
  3. ADP Non-Farm Employment Change: Wednesday, 12:15. Private sector employment increased by 214,000 jobs according to the February ADP National Employment Report. Expectations are set that next week’s reading will show a decrease toward 194K.
  4. Crude Oil Inventories: Wednesday, 14:30. Oil prices eased after figures from an industry group showed U.S. crude stockpiles rose last week by more than expected, reinforcing concerns that a global glut continues unabated. U.S. crude futures fell 95 cents to $40.50 a barrel. Prices struck a 2016 high of $41.90 in the previous session. The contract has rebounded more than 50 percent after hitting its lowest since 2003 in February.
  5. U.S. Unemployment Claims: Thursday, 12:30. In the week ending March 19, the advance figure for seasonally adjusted initial claims was 265,000, an increase of 6,000 from the previous week’s revised level. The previous week’s level was revised down by 6,000 from 265,000 to 259,000 and expectations for this week are for an increase by 4000 claims up to 269K.
  6. U.S. Average Hourly Earnings m/m: Friday, 12:30. According to the last employment report, 59.8 percent of Americans ages 16 and older had jobs in February. That’s the highest employment-to-population ratio in years, and the rate of increase is clearly on the rise. Look back some more years, though, and the story is different. The recent gains are real, but by the standards of the past few decades, a 59.8 percent employment-to-population ratio isn’t impressive this leaves expectations for Average Hourly Earnings to increase up to 0.3% from the reading of -0.1% in February.
  7. Non-Farm Employment Change: Friday, 12:30. Ian Shepherdson at Pantheon Macroeconomics nailed the jobs report. On Friday, we learned the US economy added 242,000 jobs in February, more than the 195,000 that was expected by economists and up from 172,000 in January. Underneath the headline number we got wage data that disappointed, with average hourly earnings falling 0.1% over last month in February and rising just 2.2% compared to the same month last year. Expectations for next week’s reading is for a decrease toward the 208K.
  8. U.S. Unemployment Rate: Friday, 12:30. Employers added more workers in February than projected but wages unexpectedly declined, dashing hopes that reduced slack in the labor market was starting to benefit all Americans. The 242,000 gain followed a 172,000 rise in January that was larger than previously estimated, a Labor Department report showed Friday. The jobless rate held at 4.9 percent as people entered the labor force and found work. Expectations are that the reading will remain unchanged
  9. U.S. ISM Manufacturing PMI: Friday, 14:00. Economic activity in the manufacturing sector contracted in February for the fifth consecutive month, while the overall economy grew for the 81st consecutive month. The February PMI® registered 49.5 percent, an increase of 1.3 percentage points from the January reading of 48.2 percent. Expectations are that the March reading will increase with 1.3, or up to 50.8.

* All times are GMT

 

EUR/USD Technical Analysis

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

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Technical lines from top to bottom:

We have to take note of the 1.1342 resistance which was able to hold bullish move two weeks ago, which stopped the upward move on the 9th of February and also managed to keep the second attempt which reached as high as 1.1378.

The two most important lines to be aware of are: 1.1218 Resistance line and the 1.11422 Support line. Because the break to either one of those lines will dictate the direction of the move this week.

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

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I am bullish on EUR/USD

Most investors are expecting an a bullish move this week and that will be the case if the U.S. economic releases turn negative on the dollar. There is a possibility of further terrorist attacks which might fuel further the moves to the downside. But overall the situation remains unclear for now. But overall my expectations are for bullish move this week unless the economic releases don’t change.

Why the Euro Zone Might Not Survive the Next Recession

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