Forex - GBP/USD weekly outlook: August 12 - 16

The dollar pulled away from seven-week lows against the pound on Friday but sterling remained supported after the Bank of England sounded less dovish than anticipated when giving forward guidance on interest rates on Wednesday.

GBP/USD was down 0.20% to 1.5505 at the close of trade on Friday, down from highs of 1.5573 hit on Thursday, the highest since June 19.

Cable is likely to find support at 1.5300 and resistance at 1.5573, Thursday’s high.

The greenback regained ground but gains were limited by doubts over whether the Federal Reserve will decide to begin tapering its USD85 billion-a-month asset purchase program in September.

Comments by senior Fed officials during the week, including the heads of the Federal Reserve Banks of Chicago and Dallas, indicated that the U.S. central bank could begin to scale back its asset purchase program as early as next month if the economy continues to pick up.

In the U.K., data on Friday showed that the trade deficit narrowed to its lowest level in nearly a year in June and a separate report showed that the U.K. construction sector expanded in the second quarter, adding to signs that the recovery is gaining traction.

On Wednesday, BoE Governor Mark Carney outlined plans to keep interest rates on hold at 0.5% until the U.K. unemployment rate falls to a threshold of 7% from its current level of 7.8%, something he added is unlikely to occur for another three years.

The BoE said the unemployment threshold could be set aside if low bank rates begin to threaten financial stability or if medium term inflation forecasts rise above 2.5%.

Carney said that while an economic recovery was "taking hold" in the U.K growth was likely to be "weak by historical standards."

The bank expects the economy to expand by 0.6% in the current quarter and said that growth will reach an annual rate of 2.6% in two years' time, up from 2.2% in its last report.

In the week ahead, investors will be closely watching U.S. data on retail sales and consumer inflation, as well as reports from the housing and manufacturing sectors for indications of the strength of the economic recovery.

U.K. data on retail sales and employment will also be in focus.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets. The guide skips Monday as there are no relevant events on this day.

Tuesday, August 13

The U.K. is to produce official data on consumer price inflation, which accounts for the majority of overall inflation.

Later in the day, the U.S. is to publish government data on retail sales, import prices and business inventories.

Wednesday, August 14

The U.K. is to release official data on the change in the number of people unemployed and the unemployment rate, as well as data on average earnings.

The U.S. is to release official data on producer price inflation later Wednesday.

Thursday, August 15

The U.K. is to release official data on retail sales, the government measure of consumer spending, which accounts for the majority of overall economic activity.

The U.S. is to release a series of economic data, with reports on consumer inflation, jobless claims, industrial production and manufacturing data from the Empire state and the Philly Fed.

Friday, August 16

The U.S. is to round up the week with data on building permits, a leading indicator of future construction sector activity, as well as data on housing starts. The University of Michigan is to release its closely watched preliminary data on consumer sentiment.

Read More

EUR/USD Forecast August 12-16

EUR/USD had a positive week, breaking long term resistance. Will it continue marching forward? German ZEW Economic Sentiment and GDP releases are the main events on our calendar. Here is an outlook for the main events of the week and an updated technical analysis for EUR/USD.

Strong data was released for the Eurozone’s locomotive, Germany; trade surplus topped market expectations  industrial output soared 2.4%.  The GDP expectations are now very high. Will Germany keep the euro on high ground? In the US, positive signsand taper talk hardly stopped the fall of the dollar.Let’s Start

Updates:

EUR/USD daily chart with support and resistance lines on it. Click to enlarge: 

1. German Final CPI: Tuesday, 6:00. German consumer prices advanced 0.1% in June, confirming the preliminary estimate. The reading was preceded by a 0.4% increase in May. Annual inflation increased from 1.5% in May to 1.8% in June. The Bundesbank expects inflation to reach 1.6% in 2013, before declining to 1.5% in 2014. A further climb of 0.5% is anticipated now.
2. German WPI: Tuesday, 6:00. German wholesale price index dropped more-than-expected on June falling 0.4% after the same drop in the preceding month. The reading missed predictions for a 0.3% rise. An increase of 0.3% is expected.
3. German ZEW Economic Sentiment: Tuesday, 9:00. The German economic sentiment released by ZEW revealed caution in July, with a decline to 36.3 from 38.5 in the previous month. Economists expected a rise to 39.8. Investors became more concerned with Germany’s faltering economic growth. German economic sentiment is predicted to reach 40.3.
4. Industrial Production: Tuesday, 9:00.  Euro zone industrial output declined in May after four months of gains, down 0.3% after a 0.5% increase in April. This decline was worse than the 0.2 drop projected by analysts, suggesting  the Eurozone’s recovery is fragile. The ECB implied it would keep rates at a minimum low to help the recovery process pick-up pace. A gain of 1.1% is forecasted now.
5. ZEW Economic Sentiment: Tuesday, 9:00. German Centre for European Economic Research (ZEW) showed that economic sentiment in the euro-zone edged up unexpectedly to 32.8 in July from 30.6 in June, despite a drop in German economic sentiment. ZEW President Clemens Foster said investors have positive expectations and believe Germany will withhold weaker industrial production and foreign trade data. Another rise to 37.4 is projected now.
6.  French Prelim GDP: Wednesday, 5:30. France economy shrank in the first quarter by 0.2%, hit by recession after another fall of 0.2% in the final quarter of 2012. French economy has not showed any significant progress over the year and a recent poll showed that President Francois Hollande’s approval rating has plunged dramatically to 25%. Unemployment remained high and growth continues to slow. The euro-zone’s No. 2 economy is expected to expand by 0.1% this time.
7. German Prelim GDP: Wednesday, 6:00. German GDP demonstrated a hesitant growth in the first quarter, rising by a mere 0.1%, lower than the 0.3% growth rate estimated by analysts. The slow growth was preceded by a 0.7% contraction in the last quarter of 2012, indicating Europe’s largest economy not immune to the euro crisis. German economy is expected to grow 0.6%.
8. French Prelim Non-Farm Payrolls: Wednesday, 6:45. French non-farm payrolls fell less than expected in the first quarter, dropping 0.1% after a 0.3% decline in the final quarter of 2012. Unemployment in France reached 10.2% last year, rising from 9.6% in 2011, Eurostat predicts Jobless rate would pick up to 10.6% this year and rise to 10.9% in 2014. No change is expected in the number of jobs this time.
9. Flash GDP: Wednesday, 9:00. Gross domestic product in the 17-nation euro area declined0.2% in the first quarter, mainly due to the ongoing recession in France. The Eurozone grown was in contraction since the third quarter of 2011, the longest period of declining output in the eurozone’s history. Germany, which accounts for about 30% of eurozone output, expanded by a mere 0.1% in the quarter, French output fall by 0.2% for a second consecutive quarter adding concerns the Euro area is still in recession. The Eurozone is expected to advance 0.2%.
10. Current Account: Friday, 8:00. The eurozone’s current account surplus narrowed to 19.6 billion euros in May from 23.8 billion euros in April. Analysts expected a smaller drop to 21.3 billion euros. Over the 12 months to May, the current account showed a surplus of 189.5 billion euros, compared with a surplus of 53.3 billion euros a year earlier. Surplus is expected to grow to 21.2 billion euros.
11. Inflation data: Friday, 9:00. Euro-zone annual inflation increased to 1.6% in June, up from 1.4% in May, and in line with market expectations. The rise was largely due to an increase in food and electricity prices. Meanwhile Core inflation, excluding food, energy, alcohol, and tobacco, remained unchanged at 1.2%, as forecasted. CPI is expected to remain 1.6% while core CPI is expected to decline to 1.1%

*All times are GMT

EUR/USD Technical Analysis

Euro/dollar started the week capped under the 1.33 line (discussed last week). It took a bitter struggle, but the pair eventually moved higher and continued to top the 1.3350 level, but all came at a gradual pace. 1.34 eventually capped the pair, and the pair began descending.

Technical lines from top to bottom:

We start from higher ground this week. 1.37 was the 2013 peak, and is still far. 1.3590 capped EUR/USD back in February and is minor resistance.

1.3520 was a swing high in February, before the pair tumbled down. 1.3480 was part of a head and shoulders pattern seen in January and February.

1.3415 was the peak back in June and serves as a strong line of resistance. Beyond this line, it’s a 6 month high. 1.3350 provided support when the pair traded higher in February and weakens now.

1.33 capped the pair quite strongly during July and August 2013. 1.3255 provided support during January 2013 and also beforehand. The line remains strong.

1.3175 capped the pair during July 2013 and works as another line of defense for any moves to the downside. It proved its strength during July 2013 . 1.3100 is worked as temporary resistance in December 2012 and is becoming more important once again, after capping a recovery attempt in June and then in July.

It is followed by 1.3050, which proved be strong support in May 2013, defending the round number in more than one occasion, but it is less significant now.

The very round 1.30 line was a tough line of resistance. In addition to being a round number, it also served as strong support and recently worked as a pivot line. 1.2940 is the next line of support. It worked as such during April and May 2013.

Lower, 1.2890 worked in both directions during 2012 and was the beginning of the uptrend support line. It is becoming more important, as a clear separator of ranges. 1.2840 worked as a cushion for the pair during May 2013.

Long term downtrend resistance broken for real

After an initial false break the downtrend resistance line dropping from the February high of 1.37 through the June high of 1.3415 was finally broken, and the pair continue advancing.

Uptrend resistance

Since early July, EUR/USD is running along an uptrend resistance line, and now got a bit far from it.

I am neutral on EUR/USD

We are seeing positive signs on both sides of the Atlantic: Germany’s economy is on the march and Italy is contracting less than expected. In the US, both job openings and the 4 week moving average of jobless claims are at levels last seen many years ago and tapering is closer than it seems.

However, the optimistic summer markets weigh on the dollar and limit gains for the dollar, especially after this trendline has been broken. Strong German GDP can push the euro higher.

More on EUR/USD:

• EUR/USD Advances to Major 1.3400 Resistance - by James Chen
• Weaker jobs number is not end of USD rally - by Justin Pugsley

Read More

Forex Weekly Outlook August 12-16

There has been no mercy for the US dollar, despite positive signs. How far can it fall despite growing Septaper speculation? German ZEW Economic Sentiment, US retail sales, PPI, inflation data, and unemployment claims are the main forex movers for this week. Here is an outlook on the top events on our calendar.

Last week, Weekly jobless claims increased by 5,000 reaching 333K, but remained near a five-year low. However the US Dollar continued to weaken. The job market is being closely monitored by the Federal Reserve, which is expected to taper its monthly $85 billion in bond purchases on its next meeting in September. Will the job market give a green light for the Fed to start QE tapering? Let’s Start

1. US Federal Budget Balance: Monday, 18:00. The U.S. registered a $116.5 billion budget surplus in June, the biggest surplus since April 2008. The reading was better than the 42.1 billion surplus expected, indicating improvement in the deficit, dropping to 4.4% of GDP in the past four quarters from 8.0% in the previous four quarters. Economists believe the budget deficit will shrink this year to $642 billion, in case federal taxes and spending remain unchanged. This time a deficit of 90.3 billion is forecasted.
2. UK Inflation data: Tuesday, 8:30. British inflation surged in June to the highest level in more than a year, reaching 2.9% after registering a 2.7% rise in May. However the increase was less than the 3.0% climb predicted by analysts. Due to the relatively high inflation, BOE board members voted against further QE activity at their July 3-4 policy meeting. Economists believe Mark Carney will provide long-term guidance in August to help recovery. British inflation is expected to decline to 2.8%.
3. Eurozone German ZEW Economic Sentiment: Tuesday, 9:00. German analyst and investor sentiment dropped unexpectedly in July, reaching 36.3 from 38.5 in June, contrary to predictions for a 39.6 climb. Analysts believe the slowdown in China was the major cause for this decline, endangering Germany’s export-driven economy.  Investor’s climate is expected to reach 40.3 this time.
4. US Retail sales: Tuesday, 12:30. Retail sales in the US increased by 0.4% in June, due to increased purchases of cars, trucks, furniture and clothes. However, excluding autos, gasoline and building supplies retail sales, rose a mere 0.15%, the slowest rise since January. However most economists anticipate a substantial improvement in household growth during the second half of 2013. Retail sales are predicted to climb 0.3% while Core sales are projected to edge up 0.4%.
5. UK Employment data: Wednesday, 8:30. The UK employment market continued to improve in June with an unexpected fall in the number of Britons claiming unemployment benefits. The Office for National Statistics recorded a 21,200 drop in June compared to an 8,600 reduction in May, beating expectations for an 8,000 decline. This is another sign that Britain’s economic recovery is gaining momentum.  a further decline of 14,300 claims is expected now.
6. US PPI: Wednesday, 12:30. Producer inflation increased 0.8% in June, following a 0.5% rise in May. The reading topped the consensus projection for a 0.5% gain. The core rate, excluding food and energy, increased to 0.2% after rising 0.1% in the previous month.  A rise of 0.4% is anticipated.
7. US Inflation data: Thursday, 12:30. U.S. consumer prices advanced in June moving in close proximity to the Federal Reserve expectations. Consumer Price Index increased 0.5% in June following a 0.1% gain in May, whole Core CPI remained unchanged at 0.2% in line with market expectations. Inflation is expected to pick-up in the second half of this year. Both CPI and core CPI are expected to advance 0.2% this time.
8. US Unemployment Claims: Thursday, 12:30. The number of Americans filing initial claims for jobless benefits increased slightly to 333K last week but remained near a five-year low, an encouraging sign for the U.S. economy. Claims ticked up by 5000 from the previous week, better than the 336K forecasted by analysts.  A minor rise to 334K is anticipated now.
9. US Philly Fed Manufacturing Index: Thursday, 14:00. Business conditions in the Philadelphia region edged up unexpectedly to 19.8 in July from a 12.5 reading in June. Economists expected a drop to 8.5.37% of companies experienced expansion in activity compared to 17% reported decreased activity. Job market conditions improved significantly in July, reaching 7.7, its first positive reading in four months.  A drop to 15.6 in sentiment is expected this time.
10. US Building Permits: Friday, 12:30. U.S. permits for future home construction unexpectedly declined in June to a 911,000-unit pace following 990.000 in the previous month. Economists projected a rose to 1 million unit pace. However economists believe this is a temporary slowdown, since home builders’ sentiment is bullish.  An increase to 950,000 is expected.
11. US Prelim UoM Consumer Sentiment: Friday, 13:55. Consumer confidence unexpectedly declined in July, dropping to 83.9 from 84.1 in June, amid concerns about US economic outlook. The recent increases in mortgage rates may have caused this drop. However current conditions jumped to a six-year high as stock prices approached a record after falling in the middle of June. Consumer confidence is expected to reach 85.6 this time.

*All times are GMT.

That’s it for the major events this week. Stay tuned for coverage on specific currencies

Read More