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Focus for EURGBP, EURUSD Turns to BOE, Fed Meetings

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euro forecast

Fundamental Forecast for the Euro: Neutral

The highest rated Euro-centric data due out this week are the ZEW surveys on Tuesday, although the March PMIs due out on Friday are likely to generate the greatest market reaction among the EUR-crosses.

– Improving European economic data may help spark a short covering rally in the EUR-crosses; per the CFTC’s COT report, speculative short positions are coming off of their highest level in three years.

– The IG Client Sentiment Indexshows that retail traders are selling EURUSD rallies – a contrarian signal that more gains may be yet to come.

See our long-term forecasts for the Euro and other major currencies with the DailyFX Trading Guides.

Despite enduring significant losses at the start of the month around the March European Central Bank policy meeting, the Euro has been on a bit of a tear the past week-plus. As the calendar turned into the ides of March, only EURGBP posted a negative performance over the week, closing down by -1.29% as the latest Brexit developments pointed to a potential delay in the process beyond the original March 29 deadline.

Since hitting a fresh yearly low on March 7, EURUSD has gained in five of six sessions; meanwhile EURJPY has gained in four of the past six (its yearly low remains the January 3 Yen flash-crash low).

Economic Data Momentum Continues to Improve

An objective look at European economic data shows that conditions have continued to improve, relatively speaking, over the past few weeks. In recent days we’ve seen January German trade data and January Eurozone Industrial Production figures come in better than economists’ forecasts. As a result, heading into the coming week, the Citi Economic Surprise Index for the Eurozone has moved up to -34.1 from -49.5 one week earlier, up further from -79.7 on February 15.

Stability in Energy Prices Helping Anchor Inflation Expectations

eurozone inflation expectations, brent oil

Stability in the conditions around inflation may be helping support the Euro’s recent rebound. ECB President Mario Draghi’s preferred measure of inflation, the 5-year, 5-year inflation swap forwards, closed last week at 1.466%, slightly higher from where it was one month earlier at 1.438. The ongoing rebound in energy prices seems to be helping, with Brent Oil prices up by +1.4% since February 15.

‘Barbell’ Economic Calendar in Week Ahead for Euro

The Eurozone economic calendar for the coming week is shaped kind of like a barbell: traders will want to pay attention to data due out on Tuesday and on Friday, with little practical need to pay attention to any release in between. The March Eurozone and German ZEW Surveys on Tuesday may help shine some light on how institutional investors feel about the recent turn in economic data, particularly after the ECB’s announcement for another TLTRO program. On Friday, the preliminary March Eurozone PMI reports, on balance, are expected to show signs of a modest uptick in growth conditions (Composite due in at 52 from 51.9).

EURGBP to Stay at Center of Attention

The middle of the week will be defined by what’s happening in the secondary pair in EUR-crosses. EURGBP will be of particular interest, given the UK inflation report for February due out on Wednesday and the March Bank of England meeting on Thursday.

Furthermore, one can’t dismiss the impact that the Brexit negotiations are having on the broader EUR-complex: good Brexit news means EURGBP likely depreciates; when GBP leads EUR, other EUR-crosses have tended to outperform. And vice-versa: bad Brexit news means EURGBP likely depreciates; when EUR leads GBP, other EUR-crosses have tended to underperform.

Middle of Week Sees Fed Meeting (Among Others)

Elsewhere, EURUSD will likely see volatility swell on Wednesday with the March Fed meeting. Although no policy change is expected, a new Summary of Economic Projections (growth, inflation, unemployment, and rate forecasts) typically generates a decent reaction in FX markets. Similarly, Fed Chair Jerome Powell’s press conference should keep things interesting on Wednesday afternoon.

Beyond the two major EUR-crosses, traders will want to have EURAUD on their radar on Thursday when the February Australian jobs report is released, especially as rates markets shift pricing around the next expected Reserve Bank of Australia move (according to overnight index swaps, 54% chance of a 25-bps rate cut before August).

Lastly, with signs (including in the Eurozone) of stability in energy prices filtering through to stability in inflation readings, traders will want to pay particular attention to EURJPY on Thursday when the March Japanese inflation report is released and to EURCAD on Friday when the March Canadian inflation report is made public.

Positioning Data No Longer Lagging – Short Covering Rally Soon?

euro net non-commercial positioning, eurusd spot

Finally, looking at positioning, according to the CFTC’s COT for the week ended March 12, speculators decreased their net-short Euro positions to 75.6K contracts, down from the 78.2K net-short contracts held in the week prior. It’s worth noting that we’ve recent come off of a three-year high in net-shorts. Given the current backdrop, one can’t dismiss the possibility of a short covering rally in the coming weeks.

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher, email him at cvecchio@dailyfx.com

Follow him in the DailyFX Real Time News feed and Twitter at @CVecchioFX.



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Forex

S&P 500, DAX Fundamental Forecast

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Equity Analysis and News

  • S&P 500 | Trade War Tensions Dictating Price Action
  • DAX | EU/US Trade Dispute is Delayed, Not Resolved

FTSE

Source: Thomson Reuters, DailyFX

S&P 500 | Trade War Tensions Dictating Price Action

The S&P 500 is on course to drop over 0.5% for the week as investor angst over US/China trade wars continues to weigh on risk appetite, most notably in the US benchmarks. However, while a mid-week bounce has seen losses pared slightly since the escalation with the S&P 500 now down 3% (Prev. -5.4%), the trade sensitive sectors have maintained their losses with the US Semiconductor Index down 10% (Prev. -11%). Consequently, focus will continue to remain trade wars.

SPX

Markets Pricing in Fed Rate Cuts

The Federal Reserve have continued to maintain the mantra that they will be on hold for the foreseeable future and that there is little reason to provide a cut. However, bonds markets have continued to price in Fed easing, with money markets fully priced for a rate reduction in December. Alongside this, the 3M/10yr US yield curve has continued to dip into inversion amid the rising trade war tensions. The upcoming week will see commentary from Fed Chair Powell, however, with markets pricing in a dovish Fed, the bar is high for Powell to match those dovish expectations as was evidenced in the post monetary policy decision speech on April 24th, in which the Chair noted that soft inflation was “transitory”.

FED

Source: DailyFX, Thomson Reuters

DAX | EU/US Trade Dispute is Delayed, Not Resolved

A firm week for the DAX, which recorded gains of over 1%, among the major factors behind this had stemmed from source reports stating that the Trump Administration were to delay imposing auto-tariffs on EU imports for an additional 6-months (full story), which in turn saw the European auto names surge. The decision to delay could largely be attributed to the fact that US/China tensions have escalated. However, this is merely a delay and not a resolution. Noteworthy calendar events: ECB Draghi & Praet (Thurs), Eurozone PMIs (Thur).

DAX Price Chart: Daily Time Frame (Jan 2019May 2019)

DAX

RESOURCES FOR FOREX & CFD TRADERS

Whether you are a new or experienced trader, we have several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.

— Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX

Looking for a technical perspective on Equities? Check out the Weekly Equity Technical Forecast



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Euro Weakness to Remain the Theme

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EURUSD Technical Highlights:

  • Euro looks headed towards the April low or worse
  • 4-hr chart has a developing structure to pay attention to

Check out the DailyFX Trading Guides page for intermediate-term forecasts, educational content aimed all experience levels, and more.

Euro looks headed towards the April low or worse

To be clear, trading EURUSD lately hasn’t been an easy endeavor as low volatility conditions continue to be a headwind for traders. We’ve seen some movement in other majors (GBPUSD in particular) but not in the most widely traded pair. That will eventually change, but until it does we have to continue to take what is presented to us and be patient with set-ups.

With that said, the general trading bias remains the same as it has for months – lower. Trend and price action continue to be supportive of this bias. A run on the April low at 11109 or worse looks to be in store sometime in the coming sessions, but the path could be a little shaky.

Dialing in a bit closer to the 4-hr time-frame, a channel is becoming visible even if it isn’t perfect, with candlestick wicks clouding the picture. A small bounce from the lower parallel may make for the best scenario, as the lower parallel’s importance is further cemented and a nearby low is created in the process.

A bounce and subsequent breakdown could offer a solid structure (see 4-hr chart) for would-be shorts from both a probability and risk/reward standpoint. Selling right here at support puts one at risk of a bounce with good stop placement difficult to determine.

A bounce that carries the euro beyond 11225 will give pause to sellers and bring into play the area around 12265 (recent highs/trend-lines) and possibly become an even more attractive spot to short. The bottom line is that the Euro looks headed lower, but it may pay to sit tight and wait for a better look before entering new positions. If currently in a short from higher levels, then one could use the aforementioned highs and trend-lines to manage risk accordingly.

Check out the IG Client Sentiment page to find out how changes in positioning in major markets could signal the next price move.

EURUSD Daily Chart (April low, 11000s could be soon)

EURUSD

EURUSD 4-hr Chart (Channel/Bear-flag)

EURUSD

Helpful Resources for Forex Traders

Whether you are a new or experienced trader, we have several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.

—Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at@PaulRobinsonFX

Looking for a fundamental perspective on The Euro ? Check out the Weekly EUR Fundamental Forecast



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Euro Braces for Volatility Ahead of EU Elections, ECB Minutes

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EURO FUNDAMENTAL FORECAST: BEARISH

  • Europe and the Euro brace for European parliamentary elections
  • The ECB and Fed meeting minutes may mean additional volatility
  • European economic data, OECD outlook publication add to risks

See our free guide to learn how to use economic news in your trading strategy!

The Euro may be in for its most tumultuous week year-to-date as the Fed and ECB prepare to release their respective meeting minutes right before the EU holds the most consequential European-wide vote in its history. Volatility may be further enhanced after the OECD publishes its latest projections for growth and as key Eurozone economic data is released throughout the week.

On May 21, the multinational organization will publish its economic growth forecasts with expectations that the report will highlight weakness in global demand. The US-China trade war has disrupted financial markets and destabilized global growth prospects. EU-US relations are also not particularly comforting after the two global players waged an economic war against each other with a possible continuation this year.

Euro area economic data will also be released throughout the week. German GDP and Eurozone CPI will likely be the most heavily eyed pieces of data, though their impact may be overshadowed by higher-level event risk. Broadly speaking, economic data out of Europe has been tending to underperform relative to expectations and has forced the ECB to implement new liquidity provisions as a way to boost local growth.

EUR

The following day, the Fed will be releasing its FOMC meeting minutes from the most recent policy meeting. Fed monetary policy has not only impacted the US Dollar but has also roiled global financial markets because of the implication a higher-priced USD has on international economic activity. According to the Bank of International Settlements, 80 percent of all global transactions are conducted in the US Dollar.

And finally, on May 23, Europeans will cast their ballot and express their joy – or more likely, discontent –with the European Union. Preliminary polls are showing eurosceptic parties may gain as much as one-third of all seats in the European parliament. This in itself could have devastating consequences for the Euro and could undermine the stability in European sovereign bond markets.

Spanish, Italian, Greek, Portuguese 10-Year Bond Yields Spike on Italy’s Political Turmoil

EUR

On the same day, the European central bank will be publishing its minutes from the last policy meeting. Market participants are likely expecting dovish undertones as the continent continues to struggle in bringing about sustained growth and inflation. Brexit and the European elections may only add greater political risk and cloud an already-uncertain outlook as monetary authorities attempt to steer in unchartered territory.

FX TRADING RESOURCES

— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter

Looking for a technical perspective on the Euro? Check out the Weekly EUR Technical Forecast



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