EUR/USD Weekly Forecast 13 May 19


In the previous EUR/USD weekly forecast, we noted a bullish week for the currency pair. Having said so the bearish momentum was still valid and the 1.12 region remained influential. The week brought positive data for the Spanish Flash GDP, German Prelim CPI and Euro Zone Prelim Flash GDP. The German CPI in particular gave significant upside surprise. The reported increase of 1% is twice the expected 0.5%.

The US also reported a better than expected CB Consumer Confidence, coming in at 129.2 instead of 126.2. The FOMC Statement and Press Conference was not as dovish as expected, giving a boost to the US dollar’s sentiment. A major development came in the form of the US Non-Farm Payroll. It came out at 263k instead of the expected 181k. This is more than 40% higher than the forecast. Together with this, the US unemployment rate dropped to 3.6% instead of the forecast of a flat 3.8%.

EUR/USD Technical Analysis

Looking at the EUR/USD weekly chart above, we observe a bullish week. The price action has brought the EUR/USD back above 1.12. As expected, the region of 1.12 remain highly influential due to the fact that it is a major sentiment and technical point.

We are near the top limit of the bearish channel from late last year and monitoring is required. A trend reversal will require the middle bollinger band to be taken out first followed by 1.14. Any continuation of the bearish channel will need to face the resistance turned support of 1.12 followed by the lower bollinger band.

A gentle reminder on the difference between short and long time frames. Seeing the weekly chart above, it is rather obvious that the bearish momentum is still valid. However if you are to drop to the shorter time frames, the past two weeks would appear bullish. Shorter time frames are usually sentimental in nature while longer time frames usually play out the fundamental themes.

Euro Zone Stays On The Side

After a period of seemingly good progress for the talks between the US and China trade teams, things fell out. US President Trump announced a new set of tariffs on Chinese imports and applied it towards the end of the week. US felt that China backtracked on almost all aspects of the deal. In response, China announced that retaliation will follow. Being a geo political situation with global implications, we may expect to see the Euro currency dampened. However we observe that the euro currency has not been majorly impacted. There are numerous possible reasons to this and it is our opinion that the likely reason is because the Euro Zone is not a direct beneficiary of this deal. Furthermore we know that the US President has made known of his belief that the trade between the US and Euro Zone can do with a makeover and hence with the attention on China, the Euro Zone trade situation remains as it is for now.

Euro Area Bleak Economic Forecast

The European Commission made cuts to the growth forecast for the euro area. Germany’s economic growth forecast was reduced from 1.1% to just 0.5%, resulting in a more than 50% cut. Germany is the Euro Area’s largest economy and hence the impact will affect the Euro Zone significantly. The commission also cautioned that increasing trade tensions may make the outlook even worse. This is the reason why we mentioned that with the US’s attention on China, the Euro Zone maybe breathing easier.

ECB Official Speaks

ECB Official Nowotny mentioned in an interview that he expects growth in the euro zone to increase in the second half of the year. He feels that when that growth happens, the reduction of quantitative easing measures can take place. He also commented that the ECB is not positioning itself for a long hold or reduction of interest rate.

This may inject some positive sentiment for the Euro currency as investors usually reward a tightening currency with demand.

USA Consumer Price Index Woes

Towards the end of the week, the latest USA Consumer Price Index was announced. Both the CPI and Core CPI came in lower at 0.3% and 0.1% respectively instead of the forecast of 0.4% and 0.2%. Consumer Price Index is important for the economy because the price of consumer goods is a significant component of inflation. If inflation is high, a central bank may increase interest rate to mitigate the situation. Higher interest rates usually result in demand for the currency.

The Week Ahead

In view of the recent dampening sentiment, the Euro Zone could do with positive data in the week ahead. An improved sentiment across the board will likely ease the risk aversion and increase risk appetite. On the other hand, if releases remain bleak, risk aversion may intensify and benefit “safer” assets such as the US dollar.

USA FOMC Member Clarida Speech
USA FOMC Member Williams Speech
Speeches may contain a question and answer segment that may go into unscripted territory and result in unexpected developments and volatility.
EUR German ZEW Economic Sentiment
As a survey of investors and analysts, this report holds a weight as the sentiments may be derived from their working knowledge of the economy and hence may be an early indicator of economic health.
USA FOMC Member George Speech
Speeches may contain a question and answer segment that may go into unscripted territory and result in unexpected developments and volatility.
EUR German Preliminary GDP
EUR Flash GDP
Gross domestic product is a measure of the monetary market value of all the goods and services produced. Therefore it is an important overall measure of economic activity and health.
USA Core Retail Sales
USA Retail Sales
Retail sales is a fundamental component of the economy. As consumers spend, it translates to revenue and flows up stream as salaries, wholesales purchase, production orders and so on.
USA FOMC Member Quarles Speech
Speeches may contain a question and answer segment that may go into unscripted territory and result in unexpected developments and volatility.
EUR German Deutsche Bundesbank President Weidmann Speech
Speeches may contain a question and answer segment that may go into unscripted territory and result in unexpected developments and volatility.
USA Building Permits
The construction of a building generates many economic activities. Jobs will be created for construction workers, the various sub contractors and services associated with new buildings such as power, water, furniture and so on.
USA Philly Fed Manufacturing Index
Business Climate surveys are influential as the sentiment of businesses is a leading indicator of economic health. A healthy sentiment suggests that an economy is moving along well while a cautious sentiment may see less business activities due to prudence.
USA FOMC Member Brainard Speech
Speeches may contain a question and answer segment that may go into unscripted territory and result in unexpected developments and volatility.
USA Preliminary UoM Consumer Sentiment
Consumer surveys are influential as the sentiment of consumers is a leading indicator of economic health. A healthy sentiment suggests that an economy is moving along well and hence consumers are confident. This likely leads to increased retail sales. A cautious sentiment on the other hand may see consumers spend less in view of a perceived upcoming economic crisis.
USA FOMC Member Clarida Speech
Speeches may contain a question and answer segment that may go into unscripted territory and result in unexpected developments and volatility.

There are many more events and hence it is important to follow an economic calendar. By doing so, you can reduce the possibility of an unexpected development affecting your trading plan. Members can log in to their dashboards for an economic calendar. The latest premium analysis and our popular Price Action Bias Signals are now available too.

Traders should always practice proper money management and seek to understand the underlying tones for the market.

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