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EUR/USD Forecast June 29 – July 3 (based on forexcrunch article)

EURUSD was watching Greece very carefully with contrasting news causing confusion. The story became more dramatic after markets closed with the announcement of post-deadline referendum. In the last and busy week of H2, we have important inflation numbers and PMIs. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.

The reported breakthrough in the Greek crisis on Monday did not last long as the skies darkened on Wednesday and Thursday. New hopes for a deal on Friday still lacked a few key factors. The euro has been reacting to the headlines, but often falling on good news. One reason is the refocusing on monetary policy divergence, that favors the dollar, and the other is that the common currency has become a funding or even a “safe haven” currency. But, in case of a “Grexit” or a “Grexident”, it is clear that the euro would plunge that is already worrying some brokers. The most recent development was the announcement of a referendum on the rejected proposals. This is planned for after the deadline, assuming that the Eurogroup approves a temporary extension of the deadline, which seems unlikely as of Saturday at noon. And, the referendum law still has to pass in the Greek parliament.  The crisis has overshadowed data, which has been balanced: better than expected PMIs but a weak IFO read. In the US, figures have been more positive than negative, with home sales leading the way ahead of a busy but short week in the US.

  1. Greek crisis events: Eurogroup meeting on Saturday at 12:00 and ongoing talks all the time towards the June 30th deadline. This is when the current extension of the bailout expires, and also when Greece has to pay the IMF – payments it “bundled up” in early June. In the meantime, Greek banks lack cash and they depend on the now daily decision of the ECB. The ECB uses its Emergency Liquidity Assistance tool to lend money to the banks. In case of no deal during the weekend and no additional ELA, banks could remain shut on Monday. At the time of writing a 5 month extension was discussed, but things are extremely fluid. Markets would cheer any resolution that puts the topic to sleep, even if it is merely another can kicking exercise.  More: 3 EUR Scenarios Our Greek Playbook– Morgan Stanley.
  2. German CPI: Monday, during the morning with an all German publication at 12:00. Inflation is beginning to show signs of recovery from the lows. In May, prices beat expectations and CPI advanced 0.1% m/m, as oil prices stabilized in recent months. The initial number for June will likely show a rise of 0.2%.
  3. Spanish CPI: Monday, 7:00. The euro-zone’s fourth largest economy is one of the countries that suffered most from deflation, but this is beginning to wane off. After a y/y fall of 0.2% in May, we could see a better number in the preliminary read for June: -0.1% is on the cards.
  4. German Retail Sales: Tuesday, 6:00. The zone’s locomotive has enjoyed a big rise of 1.7% in the volume of sales in April,, but this may have been skewed by the Easter holiday. A modest rise of 0.3% is on the cards now.
  5. French Consumer Spending: Tuesday, 6:45. After a big fall in April, consumers in the continent’s second largest economy picked up spending in May with a rise of 0.1%. Another advance could be seen now, worth 0.3%.
  6. German Unemployment Change: Tuesday, 7:55. Unemployment is falling in the continent’s largest economy, but the drops have been smaller in recent months. After a drop of 6K unemployed in April, a similar number could be seen in May: -5K. The employment numbers have a political impact.
  7. Flash CPI: Tuesday, 9:00. After a long period of extremely low levels, core inflation finally picked up in May and reached 0.9% y/y. Headline inflation, which is the ECB’s target, stood on 0.3% y/y, and the numbers are still affected by the fall in oil prices. A moderation is expected now, with a 0.2% rise in CPI +0.8% in core CPI.
  8. Unemployment Rate: Tuesday, 9:00. Contrary to German unemployment, the situation in the broader continent are less encouraging. A level of 11.1% was recorded in April, a small improvement in comparison to previous months. No change is expected.
  9. Manufacturing PMIs: Wednesday morning: Spain at 7:15, Italy at 7:45, the final number for France at 7:50, final for Germany at 7:55 and the final all-European number at 8:00.  Spain continued enjoying significant growth in May according to Markit’s indicator, with 55.8 points in the manufacturing sector. A slide to 55.6 is expected for June. Italy, the zone’s third largest economy, was a bit behind with 54.8 points in May and 55.2 is predicted now. The preliminary number for France showed 50.5 points in June, finally in growth territory. Germany enjoyed 51.9 points and for the whole euro-zone the number stood on 52.5 points. All three figures will likely be confirmed now.
  10. Spanish Unemployment Change: Thursday, 7:00. Spain suffers one of the highest unemployment rates in the euro-zone, but the monthly changes in the number of unemployed are encouraging, even if they are impacted by seasonal factors related to tourism. A drop of 118K was seen in May and another fall is on the cards for June.
  11. PPI: Thursday, 9:00. Producer prices dropped by 0.1% in April, worse than expected, and showing that a real pick up in inflation is still a long way coming. A small rise of 0.1% is estimated now.
  12. ECB Meeting Minutes: Thursday, 11:30. In the latest press conference, Draghi was quite calm on the QE program and saw no need to front-load bond buying or react to volatility. We will now get an inside view on the internal talks within the Governing Council. What do the members foresee for the rest of the year?
  13. Services PMIs: Friday morning: Spain at 7:15, Italy at 7:45, the final number for France at 7:50, final for Germany at 7:55 and the final all-European number at 8:00. In May, the 58.4 score for the Spanish services sector reflected very strong growth, standing out from the rest. Did this continue in June? A score of 58 is predicted. Italy saw modest growth at 52.5 points and 52.9 is on the cards now. The initial French number for June was upbeat with 54.1 points, Germany saw 54.2 and the whole euro-zone at 54.4 points. The last three numbers are expected to be confirmed in the final read.
  14. Retail Sales: Friday, 9:00. April saw a rebound in consumers’ activity, with a rise of 0.7% in the volume of sales, countering a drop of 0.6% seen in March. Despite being released after the German and French publications, the all-European figure has a significant impact. A rise of 0.2% is predicted now.
 

Crédit Agricole for US Week Ahead and What We’re Watching: NFP, EUR, USD, JPY & Greece Outcomes (based on efxnews article)

  • 'We remain of the view that a solution can be found in order to give Greece access to funds to repay the IMF next Tuesday. The EUR, however, is unlikely to face any material upside in an environment of strongly capped ECB monetary policy expectations.
  • If this is confirmed over the weekend, we suspect that USD could emerge as the biggest beneficiary and expect it to extend its gains against a broad range of G10 currencies. While a relief bounce in EUR cannot be excluded, we doubt that it will be sustained and expect renewed weakness especially against risk-correlated currencies and USD.
  • The risks to the above view have clearly grown of late, however, and we think that caution is warranted ahead of the talks over the weekend. 
  • If Greece and its creditors fail to reach an agreement this could weigh on risk sentiment as default fears soar at the start of the new week. EUR could weaken especially against liquid G10 currencies like JPY and USD.'


USD. Next week’s labour data should keep Fed rate expectations supported to the benefit of the greenback.

EUR. Regardless of any positive developments, related to Greece, we expect the EUR to remain subject to downside risk. This is due to the ECB’s aggressive policy stance.

GBP. Wealth effects to aid consumer spending. With Eurozone financial problems likely to persist irrespective of any Greek deal, the superior UK economic outlook should continue to support GBP in the week ahead.


JPY. Tankan unlikely to lift investor spirits. In keeping with the more cautious BoJ message expressed in recent weeks, key Japanese indicators this week should remain soft.

 

Morgan Stanley - EUR, JPY, GBP, AUD, CAD: Outlooks For The Coming Week (based on efxnews article)

"EUR: Markets Still Waiting for Greece. Bearish.

We remain bearish EUR over the medium term but believe that short term trading will be dominated by market risk appetite. Should European equities sell off as concerns about Greece rise, European investors would need to buy back their short EUR currency hedges, supporting the currency. That said, Greece remains a major risk and tensions are escalating, which could drive markets to increase the risk premia in the price of EUR, weighing on the currency.

JPY: Flows Keep JPY Supported. Bullish.

We believe JPY is likely to be one of the outperformers over the coming months and treat it like our quasi-dollar. Flow data suggests that Japanese investors continue to be net sellers of foreign bonds, driven by the higher volatility and thus this prevents the JPY weakening further. The key risk over the coming weeks is market’s risk appetite. A deterioration from negative news from Greece could be a further support for the JPY. We like medium term EURJPY short positions.

GBP: Strong Wages Keep GBP Supported. Neutral.

GBPUSD is being mainly driven by rate expectations and should the recent strong wage data be sustained then this should bring forward rate expectations. This week the BoE’s Weale suggested that he could vote for a rate hike as early as August. We believe there is potential for GBPUSD to reach 1.60 but prefer buying on the crosses, in particular against the NOK where an accommodative central bank highlights the divergences between the two currencies.

CAD: Trades with Oil. Bearish.  

We believe CAD is likely to weaken over the medium term in line with other commodity currencies and still observe a strong correlation with oil. The upcoming CPI print will be important, given prices have been on a down trend, and we believe the Bank of Canada could generally be too optimistic. Markets are pricing in little chance of a cut, and should this increase, it could weaken CAD in an environment of broader USD strength.

AUD: External and Domestic Pressures. Bearish.

We expect the AUDUSD uptrend to remain limited and would sell on rebounds. The outlook on the economy remains weak and now that iron ore prices are expected to weaken over the coming months from increased supply, there could be a renewed story to support the next leg lower in the AUD. Indeed, the RBA needs to remain dovish for our near term story to hold so it is a risk if the governor sounds less dovish than markets have come to rely on. 0.76 is a key support level."

 

COT report by Scotiabank: Takeaways On USD, EUR, AUD, & Other Majors (based on efxnews article)


EUR sentiment deteriorated for the first week in four, the net short widening $1.3bn to $13.9bn. Its w/w shift was the result of a paring back in both long and short positions, highlighting a broader trend of withdrawal in traders’ participation as a result of elevated uncertainty and the binary nature of Greek risk.

Investors pared back JPY risk in a manner similar to that observed in EUR, albeit to a greater degree with a $2.7bn decline in gross longs and $2.0bn decline in gross shorts. The pattern suggests that traders await a greater degree of certainty in the face of binary Greek risk.

CAD sentiment has deteriorated for the third week in four, the net short widening $0.4bn to $1.4bn on the back of a decline in gross longs—falling to their lowest levels since June 2013.

AUD sentiment is also bearish, albeit modestly so with a net short at $0.7bn. Investors in appear cautious in adding to risk in either CAD or AUD, waiting for a breakout of their relatively narrow ranges.

 

Forex technical analysis: EURUSD gaps. What is the trading strategy? (based on forexlive article)

'Looking at the daily chart below, the price has been able to extend below the 50% of the move up from the March low at 1.04617 to the high from May at 1.14658. That level comes in at 1.09638. This remains a key level to get below - and satay below if the bears are to extend the range further.' 



'Above, there a slew of old swing lows and highs at 1.1032 to 1.1065. The 100 day MA is at 1.1049 (key level). I would expect that sellers will lean against the 1.1032-49 area as a risk defining level in trading today. It would seem to me that the 100 day MA should be a key "line in the sand" for the pair from a technical perspective.  We should not trade above this level.'
 

Credit Agricole - 'A Referendum On EUR': What's Next For Greece? (based on efxnews article)

"The upcoming referendum is in fact a referendum on the Greek membership in the Eurozone. Indeed, if the people of Greece turn down the reform proposal, the country will end up with no creditor funding (and no ECB support for its banks). A default should follow and, with Greece still cut off from the global capital markets and with no sovereign default resolution mechanism in place in the Eurozone, the government will be forced to raid domestic deposits or issue IOUs. The latter will be in violation of the EZ treaties and mean Greece should ultimately leave the EUR."

"Needless to say, social tensions should escalate and political uncertainty soar, pushing the economy closer to the precipice."

"Given the gravity of the decision, we still think the people of Greece will choose to stay in the EUR and agree to the creditors' reform proposal on July 5."

 

Danske Bank 'Buy SEK, NOK, CHF And Sell NZD, USD, CAD for this week' (based on efxnews article)

  • This week the scorecard recommends buying SEK, NOK and CHF, and selling NZD, USD and CAD (see suggested weights in portfolio in table below). 
  • The recommendation to  buy the Scandies and the Swissie derives largely from last week’s dire performance (i.e. a mean reversion argument) and fits neatly with the likelihood that risk-off sentiment will dominate markets at the start of what looks set to be a chaotic week for Greece. NOK is also favoured due to positioning and the risk premium component.
  • While the  scorecard suggests selling USD  this week  due to  technicals, last week’s price action and still stretched positioning, we note in relation to the latter component that IMM data actually suggests that there should be room to add  to longs in USD as we are still some way off the highs for the year, see  IMM Positioning: Still decent room for USD longs to be added.
  • Last week’s signals resulted in a  close to 2%  gain.  The short EUR position  in particular performed well due to the sell-off in EUR crosses this morning as Grexit risk has intensified.


 

Bank of America Merrill Lynch for EURUSD: Monetary Policies Vs Greece (based on efxnews article)

FED, ECB, Greece:

"The Greek Referendum will drive headlines for the near-term. We believe that divergence of monetary policies is a more powerful EUR driver than Greek risks. In this context, the timing of the first Fed rate hike (September is our call) and the ECB’s tone (the market misread the ECB’s message to get used to volatility) are more important for the euro than Greek headlines. Whilst Greek headlines and deadlines are clearly urgent, and the market implications in our view both important and not priced in the short-run, ultimately the evolution of monetary policy is in our mind more important," BofA argues.

"We remain bearish EUR/USD, but the uncertainty around the Fed is not bolstering our conviction levels. The euro’s reaction to Greek headlines has been puzzling, sometimes weakening in response to positive headlines for a deal. In part, this is because the USD is oversold. It can also be that the market does not believe that a deal will fully address Grexit risks, which in turn suggests that the ECB is likely to keep QE to be able to address periphery risks and push against a rates sell-off. This could explain the negative correlation between European equities and the Euro recently. Our view remains that tail risks in Greece are negative for the Euro," BofA adds.


Forecasts:

"We have marked-to market our Q3 EUR/USD projection, but keep our end-year projection to 1.00. This assumes that US data will improve in H2, the Fed will start hiking rates in September, the ECB will push against the recent sell-off in rates, inflation will remain below the ECB’s target path, and the market will start expecting the ECB to continue with QE after September 2016," BofA projects.

"At the same time, we expect the Fed to push against any strengthening of the USD that goes beyond what data would justify. We do not expect Grexit in our baseline, but believe that Greek risks will continue weighing on the Euro, with Grexit risks increasing as long as Greece remains in a grey zone," BofA adds.

 

Trading the News: U.K. Gross Domestic Product (GDP) (based on dailyfx article)

An upward revision in the U.K. 1Q Gross Domestic Product (GDP) report may heighten the appeal of the British Pound and spur a near-term advance in GBP/USD as it puts increased pressure on the Bank of England (BoE) to normalize monetary policy sooner rather than later.

What’s Expected:


Why Is This Event Important:

Signs of a stronger recovery may spur a growing dissent within the Monetary Policy Committee (MPC) as board member Martin Weale sees scope to raise the benchmark interest rate as early as August, and we may see a growing number of BoE officials adopt a hawkish tone over the coming months should the fundamental developments coming out of the U.K. boost the outlook for growth and inflation.

However, the slowdown in building activity along with the softening in private-sector credit may lead to a lackluster GDP print, and fears of a slower recovery may drag on the British Pound as it gives the central bank greater scope to retain its wait-and-see approach throughout 2015.

How To Trade This Event Risk
Bullish GBP Trade: U.K. Economy Expands Annualized 2.5% or Greater

  • Need to see green, five-minute candle following the GDP report to consider a long trade on GBP/USD.
  • If market reaction favors a long sterling trade, buy GBP/USD with two separate position.
  • Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward.
  • Move stop to entry on remaining position once initial target is hit; set reasonable limit.
Bearish GBP Trade: 1Q GDP Falls Short of Market Expectations
  • Need red, five-minute candle to favor a short GBP/USD trade.
  • Implement same setup as the bullish sterling trade, just in reverse.
Potential Price Targets For The Release
GBPUSD Daily



  • After carving a higher-high in June, will retain a constructive outlook for GBP/USD as long as the RSI retains the bullish momentum carried over from back in April.
  • Interim Resistance: 1.5929 (June high) to 1.5940 (61.8% expansion)
  • Interim Support: 1.5550 (50% retracement) to 1.5570 (38.2% retracement)
Impact that the U.K. GDP report has had on GBP/USD during the last release

Period Data Released Estimate Actual Pips Change
(1 Hour post event )		 Pips Change
(End of Day post event)
4Q F
2014		 03/31/2015 08:30 GMT 2.7% 3.0% +8 +45

MetaTrader Trading Platform Screenshots

GBPUSD, M5, 2015.06.30

MetaQuotes Software Corp., MetaTrader 5

GBPUSD M5: 28 pips price movement by GBP - GDP news event

GBPUSD, M5, 2015.06.30, MetaQuotes Software Corp., MetaTrader 5, Demo


 

Euro area annual inflation down to 0.2% (based on official report)

Euro area annual inflation is expected to be 0.2% in June 2015, down from 0.3% in May 2015, according to a flash estimate from Eurostat, the statistical office of the European Union.

EURUSD M5: 35 pips price movement by EUR - CPI Flash Estimate news event:


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