EUR/USD fundamental and technical outlook by Morgan Stanley

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Sergey Golubev, 2015.10.24 18:37

EUR/USD Forecast Oct. 26-30 (based on forexcrunch article)

EUR/USD totally collapsed after Draghi hit it hard. Will it be able to stage a recovery or does it have lots more to fall from here? An important German survey and inflation numbers stand out. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.

Expectations were high for the ECB meeting and Draghi easily leaped over them, over-delivering on thick hints: from expanding and extending QE through opening the door for a rate cut and also some skills, such as the use of the word “vigilant”. This resulted in a crash worth over 300 pips that lasted well over a day and pierced through uptrend support. The dollar also enjoyed some back wind from better home sales and jobless claims. Good euro-zone PMIs only temporarily helped the euro.

1. Bundesbank Monthly Report: Monday, delayed from last week. The German central bank publishes a monthly report about the state of the economy, employment and inflation. The most interesting part would be an assessment of the VW scandal to the German economy. The car maker is not only a symbol of German industry but also a huge employer in Germany. Also other companies are impacted by the supply chain.
2. German Ifo Business Climate: Monday, 9:00. Germany’s No. 1 Think Tank is expected to show a small decline in business confidence, from 108.5 points in September to 108.1 now. The wide survey will also incorporate the Chinese slowdown in addition to the Volkswagen crisis. The ZEW figure already missed expectations.
3. ECB Monetary Data: Tuesday, 9:00. The ECB’s monetary stimulus did succeed in pushing the money in circulation, M3 Money Supply, to higher levels, with an annual expansion of 4.8% in August. A rise to 5% is on the cards now. Private loans are growing at a rate of 1% as of August and September is expected to see an acceleration to 1.1%.
4. German Import Prices: Wednesday, 7:00. Import prices are falling sharply, and this feeds into inflation figures. A big drop of 1.5% was seen in August and a more moderate slide of 0.2% is on the cards now.
5. German GfK Consumer Climate: Wednesday, 7:00. This survey of 2000 consumers has topped out a few months ago above the 10 level. From 9.6 points in September, a level of 9.5 is predicted now.
6. German CPI: Thursday, the various German states throughout the European morning and the final number at 13:00. The early number for October is predicted to show a slide of 0.1% in prices, following a bigger than expected dip of 0.2% in September m/m. Even Germany, that is enjoying solid growth, is experiencing falls in prices.
7. Spanish CPI: Thursday, 8:00. The euro-zone’s fourth largest economy has enjoyed strong growth but this came on top of deflation. After a big year over year drop of 0.9% in September, an annual level of -0.6% is on the cards, well below the recent euro-zone levels.
8. German Unemployment Change: Thursday, 8:55. The zone’s locomotive has seen a small rise of 2K in the number of unemployed. A drop of 4K is on the cards. Despite the disappointing rise last time, Germany is enjoying a low unemployment rate.
9. German Retail Sales: Friday, 7:00. Consumers were less busy in August: a drop of 0.4% was recorded in the volume of sales. A bounce back of +0.4% is on the cards now. With exports to China slumping, internal demand is key to the economy.
10. French Consumer Spending: Friday, 7:45. The French version of retail sales has been flat in August. A recovery is expected now with +0.2%.
11. Spanish Flash GDP: Friday, 8:00. Spain’s growth has been a success story. The early release of this figure (in comparison with other EZ countries) makes it more significant. After growing 1% in Q2, the zone’s fourth largest economy is expected to report a similar growth rate of 0.9% q/q.
12. Inflation data: Friday, 10:00. The euro-zone slipped back to deflation in September, with -0.1% and this was a key reason for Draghi’s strong words. A return to a flat 0% is on the cards now. Core inflation is doing better with +0.9% and the same figure is expected here. Note the ECB’s inflation target is “2% or a bit below”.
13. Unemployment rate: Friday, 10:00. At 11%, the unemployment in the euro-zone is not encouraging. While it did slip from higher levels, it isn’t going down fast enough. No change is expected.