To kick off the week let's take a look at the Euro dollar
and Sterling dollar currency pairings, and take a view on where they may be
going. Let's start with the Euro - EUR/USD.
The weekly chart below shows a clear uptrend dating back to
around August 2013. For a currency that was deemed to be in crisis 18 months
ago, the Euro is holding up better than expected over the longer timeframe.
EUR/USD Weekly chart
If we drop to a daily chart the picture is more range bound,
we've been going sideways since March. There was a sharp dip on May 8 when
Mario Draghi, the president of the European Central Bank, suggested that
monetary policy might be loosened to stop prices falling, and also to combat
low inflation. The euro has continued to fall since then - an overall 200
points from 1.39 to 1.37. The general consensus seems to be that the currency
is a little too strong at the moment, which weakens exports and has inflation
way below the level Mr. Draghi would like it to be at 0.7%. The target figure
is just below 2%.
EUR/USD Daily Chart
There is a rough support level at around 1.3670, (see the
continuous blue line above), which was tested last Thursday, but only
temporarily breached before bouncing back. That breach on May 15 was down to
lower than anticipated Eurozone economic data. The region grew 0.2% as opposed
to the expected 0.4%. This gives even more credence to the possibility of the
ECB acting in June to adjust monetary policy, which could see a further fall. From
an intraday trading perspective the 4 hour and 1 hour charts are also range
bound, but the 15 minute chart is showing some momentum.
What's on the economic calendar for the Euro this week?
Tomorrow (Tuesday 20th) we'll get data for the producer
price index early in the day. The industrial sales index figures come out two
hours later, at 9am.
Then on Wednesday current account data for transactions in
and out of the Eurozone is released at 8am. A high positive figure should be a
bullish signal, though this is not flagged as a high impact event.
On Thursday we'll see a Business climate report at 7.45am,
showing the current state of French business conditions. At 8.30am the German
Purchasing Managers Index report comes out, followed at 9am by the same PMI
data for the Eurozone as a whole.
On Friday you'll see some GDP and business climate data from
Germany, with Retail Sales, wage inflation and trade balance data from Italy.
And also remember that the elections for the European parliament are happening
this week.
None of the economic indicators above are seen as big ticket
events, but nonetheless, it's worth keeping an eye out to see what impact they
have. The outlook for the Euro going into June though looks decidedly bearish,
especially if Mr. Draghi acts on the hints he's so far given us.
Moving on to Sterling now - GBP/USD
The weekly chart shows a strong uptrend for Cable, perhaps
that should be no surprise as the UK is touted as the fastest growing economy
in Europe this year. Yes, it dropped a bit last week, but is showing signs of a
revival today.
GBP/USD weekly chart
If you're a purely technical trader this is an uptrend to
die for on the weekly timeframe. And it's quite well reflected at the daily
level, below. There's a support level around 1.6750, which has been tested and
bounced off.
GBP/USD daily chart
If you drop down to the lower timeframes it's been a bit
range bound, but with a slight spike up early this afternoon. But there's quite
a lot coming up for Sterling on the economic calendar this week, and they're
events that could trigger some significant movement.
Tomorrow sees the Consumer Price Index being released at
9.30am. This is basically an indicator of inflation and purchasing trends, and
could have a market impact. At the same time we'll see Producer Price Index and
Retail Price Index reports.
On Wednesday it hots up even more, with the official Bank of
England decision on what will happen to interest rates being released. I would
expect rates to remain unchanged, but if that's not the case watch out!
Then on Thursday at 9.30am we have GDP data coming out,
another potential high impact event. Although the UK is experiencing recovery,
and employment figures are looking better, productivity hasn't been rising at a
proportionate rate. So this could be significant data.
It's a quiet day for Sterling on Friday. Again, we have the
European elections this week, and if UKIP does well the markets will no doubt
react, which way of course is another question. But right now the outlook for
sterling looks bullish.
The longer term outlook suggests that if support holds at
around 1.6660 (next level of support below the one I've drawn above), that
Sterling will continue to be bullish. With economic growth forecast at around
3.8% this year and continuing into 2015, the rising momentum could take us to
around 1.73, though some opinion sees the market as overbought, which tempers
this estimate.
Darren Winters 19/05/14
0 comments:
Post a Comment