GBP/USD Forecast Sep. 29-Oct. 3

The British pound ended the week with slight losses, as GBP/USD closed the week at 1.6234. This week’s key events are Current Account and PMI. Here is an outlook on the major events moving the yen and an updated technical analysis for USD/JPY.

It was an uneventful week for the handful of British releases, which met expectations. The US economy continued to post strong numbers, as New Home Sales beat the estimate and GDP sparkled with a 4.6% gain in Q2.

Updates:

GBP/USD graph with support and resistance lines on it. Click to enlarge:

1. Net Lending to Individuals: Monday, 8:30. The BOE’s report regarding lending showed a net value of 3.5 billion pounds in July, well above the estimate of 2.4 billion. The estimate stands at 3.1 billion. More lending usually results in more spending.
2. GfK Consumer Confidence: Monday, 23:05. Consumer confidence remains low, despite an improved UK economy. The indicator came in at 1 point last month, and the forecast for the upcoming release stands at a flat zero points.
3. Nationwide HPI: Tuesday, 6:00. This housing inflation indicator helps track the level of activity in the housing sector. The index jumped 0.8% last month, easily beating the estimate of 0.1%. The markets are expecting another strong release, with an estimate of 0.6%.
4. Current Account: Thursday, 8:30. Current Account, released quarterly, is directly linked to currency demand, since foreigners must by pounds to pay for British exports. The deficit narrowed to 18.5 billion pounds in Q1, but this was higher than the estimate of 17.1 billion. A further reduction is expected in Q2, with an estimate of -16.9 billion.
5. Final GDP: Tuesday, 8:30. Final GDP, released each quarter, continues to post strong readings. The indicator gained 0.8% in Q1 and the same reading is expected in the upcoming release.
6. Preliminary Business Investment: Tuesday, 8:30. This indicator has moved higher for five consecutive quarters. In Q1, the indicator posted an impressive gain of 2.7%, beating the estimate of 2.3%. The estimate for Q2 stands at 2.1%.
7. External BOE MPC Member David Miles Speaks: Tuesday, 17:30. Miles will deliver remarks at an event in London. The markets will be looking for some clues as to the BOE’s future monetary policy.
8. Manufacturing PMI: Wednesday, 8:30. Manufacturing PMI has lost ground in recent releases. The August release dipped to 52.5 points, shy of the estimate of 55.1 points. More of the same is expected, with the estimate standing at 52.6 points.
9. External BOE MPC Member Kristin Forbes: Thursday, 17:30. Forbes will speak at an event in London. BOE policymakers often drop subtle hints regarding the BOE’s future monetary policy.
10. Construction PMI: Thursday, 8:30. The PMI remains at high levels and came in at 64.0 points last month, the indicator’s best showing since January.
11. Services PMI: Thursday, 8:30. This is the last of the PMIs for the week. The index climbed above the 60-point level last month for the first time in 2015, hitting 60.5 points. The estimate stands at 59.1 points.

* All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.6309 and touched a high of 1.6415. The pair then retracted and dropped to a low of 1.6234, dipping below support at 1.6250 (discussed last week). The pair closed the week at 1.6234.

Live chart of GBP/USD:

Technical lines from top to bottom

We start off with resistance at 1.6740. This line capped the pair on a recovery attempt in August and is currently high resistance.

1.6660 was a swing low in April and also in August.

1.6615 is the top of the current range after capping it in August. The bottom of the range is at 1.6535.

Below, we have 1.6465, which was the bottom in March. Further below, the round number of 1.64 is providing resistance.

1.6310, the next resistance line, was a cushion during January.

This is followed by support at 1.6250, the low seen in February. The line was breached for a second straight week and has switched to a resistance role.

1.6131 has remained intact since August 2011. At that time, the dollar posted an impressive rally which as GDP/USD dropped close to the 1.53 line.

1.6006 has held firm since October, and stands just above the psychologically important 1.60 level.

1.5909 was last tested in late October.

The final support line for now is 1.5746, which was important support in January.

I am neutral on GBP/USD.

US and UK numbers have been solid, and the pound managed to hold its own against the dollar, which posted broad gains last week. With the Fed set to wean the economy off QE in October, there will be more focus on the timing of an interest rate hike. Both central banks are about to tighten, but which currency will have the upper hand?

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EUR/USD Forecast Sep. 29 – Oct. 3

EUR/USD continued deteriorating and broke down to the lowest levels since November 2012. Is it getting close to the bottom or can we expect more falls? The keys are in the hand of Mario Draghi. Apart from the ECB meeting, we have inflation numbers as well as PMIs and other events . Here is an outlook on the highlights of this week and an updated technical analysis for EUR/USD.

Also another German survey showed worse than expected business confidence. Preliminary PMIs were mixed but certainly unimpressive and Draghi joined in by reiterating that the ECB is ready to do more. Yet a big part of the move came from the other side of the Atlantic, as the US dollar continued forward, beating all its major peers. It was boosted by the highest new home sales in 6 years, as well as the expected upgrade to GDP. How will the pair fare in the new quarter?

Updates:

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

1. German CPI: Monday: states release data during the morning and the all-German number is released at 12:00. As the largest country in the euro-zone, Germany’s inflation numbers have a strong influence on the overall CPI and it has the strongest influence in the ECB. After remaining flat in August, a slide of 0.1% is expected for September. The y/y HICP is predicted to slide to 0.7% from 0.8% last month.
2. Spanish CPI: Monday, 7:00. The fourth largest euro-zone economy is in outright deflation, seeing a y/y fall of 0.5% in prices in August. For September, a slide of 0.3% is predicted. The weakness in prices comes in contrast with the recent growth the country reported.
3. German Retail Sales: Tuesday, 6:00. The volume of sales in Europe’s No. 1 economy plunged by 1.4% in July, and that was certainly a disappointment. A bounce back is expected now, by 0.6%.
4. French Consumer Spending: Tuesday, 6:45. France releases data for two months: July and August. After a rise of 0.9% in June, both July and August are expected to suffer from drops in spending: 0.3% and 0.2% in Europe’s second largest economy.
5. German Unemployment Change: Tuesday, 7:55. The number of unemployed in Germany disappointed with a rise of 2K in July. A reversal is predicted now: a rise of 2K. While unemployment is low in Germany, it hasn’t shined recently.
6. CPI Flash Estimate: Tuesday, 9:00. The ECB’s mandate is to achieve an inflation level of 2% or “a bit below”, and the central bank is certainly missing on the target. After a revision, August’s inflation level was 0.4% y/y and this is expected to slide down to 0.3%. However, the weaker euro during September may have already had some influence on the data. Core inflation is predicted to remain unchanged, at 0.9%, also far below target.
7. Unemployment Rate: Tuesday, 9:00. The unemployment rate in the euro-zone is very high: 11.5%, but it is off the peak of 12.2%. No change is expected now. The release will likely be overshadowed by the CPI data.
8. Italian CPI: Tuesday, 9:00. The euro-zone’s third largest economy releases its inflation data at the same time as the all-European figure. After a monthly rise of 0.2% in August, a slide of 0.3% is predicted now. Also here, the number will need to be extremely out of sync with expectations in order to have an impact.
9. Manufacturing PMIs: Wednesday: Spain at 7:15, Italy at 7:45 and EZ at 8:00. Spain is enjoying growth according to the PMI for August: 52.8 points, above the 50 point mark separating growth and contraction. A small slide to 52.3 points is expected now. In Italy, Markit sees marginal contraction: 49.8 points. This is expected to deteriorate to 49.4 points.
10. Spanish Unemployment Change: Thursday, 7:00. Spain suffers from an extremely high unemployment rate and has a seasonal job market. After a rise of 8.1K unemployed in August, the end of the peak of the tourist season will likely result in a bigger rise in unemployment: 31.3K.
11. PPI: Thursday, 9:00. Producer prices are weak, like consumer prices. After a slide of 0.1% in June, another slide of 0.2% is expected in July. This is before the recent big slide in the value of the euro.
12. Rate decision: Thursday, 11:45. Press conference at 12:30. The ECB surprised with yet another round of rate cuts as well as a statement about a “sizable” ABS program. Since then, the first installment of the targeted loans came out poorly. On the other hand, the fall of the euro is certainly encouraging. No changes are expected in the interest rates, as they have reached their lower bound according to the Bank. However, we can expect more details on the ABS program and on expectations for the next TLTRO and a potential for QE to move the markets. It will be interesting to hear if Draghi expresses optimism about the euro area thanks to a better lending environment, the steps already taken and the lower euro, or if he continues expressing concern and readiness to do even more. This is the key topic. In the past, Draghi zig-zagged between optimism and pessimism, but on the other hand, he could take a page from the RBNZ’s book, and the hit the euro when it’s down and out.
13. Services PMIs: Friday: Spain at 7:15, Italy at 7:45 and EZ at 8:00. Spain’s services sector enjoys rapid growth according to Markit: 58.1 points in August. A slide to 56.9 is expected now. Italy is expected to move away from the 50 point mark separating contraction and growth and slide from 49.8 to 49.6 points.
14. Retail Sales: Friday, 9:00. Despite being released after Germany’s retail sales publication, this figure has an impact. After a drop of 0.4% in July, a rise of 0.1% is expected in August.

* All times are GMT

EUR/USD Technical Analysis

Euro/dollar started off the week with a failed attempt to reach the 1.2920 line mentioned last week. It then began deteriorating quickly and lost the critical double bottom line at 1.2750, reaching a 22 month low. Another dead cat bounce resulted in a slide to 1.2678, just above another important line: 1.2660.

Live chart of EUR/USD:

Technical lines from top to bottom:

We begin from lower ground this time. The round number of 1.31 served as resistance several times, and the all important figure below is 1.30, which is more than a round number.

Below 1.30, we find support at 1.2960 which capped the pair’s recovery attempts after it fell to lower ground. The 1.2920 level was the initial low and has now turned into strong resistance.

1.2860 a place where the pair stopped on the way down in September, and now has the opposite role. The round number of 1.28, which also worked as support at around the same period of time is yet another line of resistance.

1.2750 was the low where the pair traded last time it was around these levels: July 2013. This double bottom was breached and immediately worked as resistance. 1.27 is a round number and also worked as temporary support now.

This is followed by 1.2660 – a key line to the downside, which marks the beginning of long term uptrend support. Below, 1.2590 capped the pair back in August 2012 and serves as the last support line before the round number of 1.25, which is USD/EUR at 0.80.

Even lower, 1.2445 was a swing high in August 2012 and it is followed by 1.2385, which was stubborn resistance around the same time.

1.2250 served as support several times in that summer, and 1.2170 was the “shoulder” in the inverse H&S pattern around the same time. The last line is the 2012 low of 1.2040.

Here is a closer look at the recent trading levels, using the hourly chart:

Long term uptrend line clearly broken

After downtrend support was left behind, we are now reaching a much older line, which accompanied the pair since November 2012 and was touched twice in 2013 and since forgotten. The pair broke below the line, but managed to give another fight before totally collapsing.

I remain bearish EUR/USD

While there is a chance that inflation in the euro-zone will beat expectations due to the weaker euro and that the ECB may thus convey a positive message, the monetary policy convergence is clear and intensifying. With no growth, rock bottom inflation and with the poor TLTRO, the ECB will likely push forward and make it clear that it means business, thus hitting the euro when it’s down. On the other side of the Atlantic, a bounce back from last month’s weak NFP can meet the markets when expectations are low, thus providing another reason for the dollar to rally, as it seems unstoppable Where will the pair stop falling? The ECB will probably feel comfortable only around 1.20-1.25.

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USD/JPY Forecast Sep. 29-Oct. 3

USD/JPY was almost unchanged last week, as the pair closed at 109.22. The upcoming week has 10 events, led by Household Spending, Retail Sales and the Tankan indices. Here is an outlook on the major events moving the yen and an updated technical analysis for USD/JPY.

It was an uneventful week in Japan, with the markets closed on Tuesday and only a handful of Japanese events. Inflation indicators, led by Tokyo Core CPI, met expectations. The US economy continued to post strong numbers, as New Home Sales beat the estimate and GDP sparkled with a 4.6% gain in Q2.

Updates:

USD/JPY graph with support and resistance lines on it:

1. Household Spending: Monday, 23:30. Household Spending is an important gauge of consumer spending, which is a key component of economic growth. The indicator has been on a downward spiral, posted four straight declines. Last month, the indicator dropped 5.9%, much worse than the estimate of a 2.7% decline. Another drop is expected in the August release, with an estimate of -3.5%.
2. Preliminary Industrial Production: Monday, 23:50. This indicator has been alternating between gains and declines in recent readings. In July, the indicator posted a small gain of 0.2%, well off the estimate of 1.2%. The estimate remains unchanged at 1.2% for the upcoming release.
3. Retail Sales: Monday, 23:50. Retail Sales is one of the most important economic indicators and should be treated by traders as a market-mover. The indicator bounced back last month with a gain of 0.5%. This easily beat the estimate of -0.1%. Little change is expected in the August release, with an estimate of 0.4%.
4. Average Cash Earnings: Tuesday, 1:30. This indicator measures the change in employment income, which is closely linked to consumer spending. The indicator jumped 2.6% last month, well above the forecast of 0.9%. The markets are expecting a gain of 1.1% in the August release. 
5. Housing Starts: Tuesday, 5:00. The indicator has posted five consecutive declines, pointing to a decrease in activity in the housing sector. The indicator came in at -14.9% last month, worse than the estimate of -10.3%. Another sharp drop is expected in the upcoming release, with an estimate of -13.9%.   
6. Tankan Manufacturing Index: Tuesday, 23:50. The Tankan indices, released each quarter, are important gauges of the health of the Japanese economy. The Manufacturing Index slipped to 12 points in Q1, shy of the estimate of 16 points. Little change is expected, with an estimate of 11 points.
7. Tankan Non-Manufacturing Index: Tuesday, 23:50. This indicator is based on a survey of businesses in the service industry. The index softened in Q2 to 19 points, but his is still a strong reading. The estimate for Q2 stands at 17 points. 
8. Final Manufacturing PMI: Wednesday, 1:35. The indicator has been in growth mode since June, with readings above the 50-point level. The index came in at 52.2 points in July, very close to the forecast. The estimate for the upcoming release stands at 51.7 points.
9. 10-year Bond Auction: Thursday, 3:45. The yield on 10-year bonds has been around 0.50% for the past two readings, and little change is expected at the upcoming auction.

* All times are GMT

USD/JPY Technical Analysis

Dollar/yen started the week at 108.95 and touched a low of 108.25, breaking below support at 108.58 (discussed  last week). USD/JPY then climbed to a high of 109.54. The pair closed at 109.22.

Live chart of USD/JPY:

Technical lines from top to bottom:

114.65 has provided resistance since December 2007.

112.48 marked the start of a yen rally in January 2008, which saw USD/JPY drop below the 100 level.

110.68 represented a high point of a strong dollar rally in August 2008, which started around the key 100 level.

108.58 started the week as immediate support. This line was breached early in the week but then recovered. It could face pressure early in the week.

106.88 is next. This line switched to a support role earlier in September.

105.44 had held firm since December.

104.92 capped the pair around the turn of the year.

104.25 was an important resistance line back in August and continues to provide strong support. It is the final support level for now.

I am bullish on USD/JPY

US numbers have looked solid, and the markets are expecting a strong NFP late in the week. The divergence in monetary policy is weighing on the  yen, as the BoJ considers additional stimulus while the Fed is on the verge of wrapping up QE.

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Forex Weekly Outlook Sep 29-Oct 3

The US dollar had another superb week, crushing its peers. A rate decision in the euro-zone, US Consumer confidence, ISM Manufacturing PMI and of course the all-important NFP report are among the top tier events that await us as we enter a new quarter. These are the major events on Forex calendar. Here is an outlook on the main market-movers ahead.

Markets were hungry for dollars, and found some reasons to do so: new home sales reached the highest in 6 yearsand showed the economy expanded at an annual rate of 4.6% in the second quarter, better than the 4.2% estimate made a month ago, providing momentum for strong growth the rest of the year. US The euro had its reasons to fall on weaker German business confidence and a reiteration that the ECB is ready to do more. Commodity currencies suffered alongside stock markets and worries about China, and specifically the kiwi was hit by the RBNZ when it was down. Let’s start:

Updates:

1. Eurozone Inflation data: Tuesday, 9:00. Euro zone inflation edged up 0.4% in August, the same as in July. The main price increase occurred in rents and car-repair. The Euro area remained in the “danger zone” of below 1% for 11 straight moths. The recent rate cuts and asset purchases are expected to stimulate the economy and boost inflation. ECB next step may involve a more massive bond-buying program. Euro zone inflation  is expected to gain 0.3% this time.
2. Canadian GDP: Tuesday, 12:30. The Canadian economy expanded 0.3% on a monthly base in June, following a 0.5% gain in May. The reading was better than the 0.2% expansion anticipated by analysts. The increase was driven by an increase in mining and oil and gas extraction offsetting the fall in the manufacturing sector. On a  yearly base, GDP edged up 3.1% in June the highest growth rate since September 2011. The Central Bank expects that the economy will expand 2.2% in 2014 and 2.4% in 2015. GDP is forecasted to increase by 0.2% in July.
3. US CB Consumer Confidence: Tuesday, 14:00. US consumer confidence picked up in August, reaching 92.4 from a downwardly revised 90.3 the prior month. The reading was higher than the 89.1 reading projected by analysts and posted the fourth straight rise. Better business conditions and strong job growth boosted consumer’s moral. Consumers also forecasted an inflation rise of 5.5% in the coming 12 months. Consumer confidence is expected to reach  92.2 this time.
4. US ADP Non-Farm Employment Change: Wednesday, 12:15. ADP payroll numbers slipped in August to 204,000, from 212,000 in the previous month. However the ADP figures have proved to be volatile, showing only the general trend of the Non-Farm payrolls coming later that week. Economists expected a stronger release of 218,000. Overall, employment figures remained high, posting the fifth straight month of job gains above 200,000. The US job market is expected to expand by 206,000 positions in September.
5. US ISM Manufacturing PMI: Wednesday, 14:00.  U.S. manufacturing activity edged up to its highest level in nearly 3-1/2 years in August, rising to 59, after a 57.1 release in July, amid a strong jump of a 3.4% in consumer spending during July, indicating a growth trend in the US economy. Economists expected a reading of 57 points. Private construction, the largest portion of construction spending, rose 1.4%, its highest level since November 2008. U.S. manufacturing is predicted to reach 58.6.
6. Eurozone rate decision: Thursday, 11:45. The European Central Bank cut its benchmark rate to 0.05% in September from 0.15% in August. ECB President Mario Draghi noted the rate cut reached the lower bound following a downturn trend in the Eurozone economy with low inflation, sinking deeper below the ECB’s target of just under 2 %. The ECB also lowered the rate on bank overnight deposits to -0.20%. No change in rates is expected now. In the press conference, Draghi will likely provide more details about the ABS program. Will it indeed be sizable? He will likely refer to the first round of the TLTRO, that didn’t go so well.
7. US Unemployment Claims: Thursday, 12:30. The number of people filing initial claims for unemployment benefits increased by 12,000 last week to 293,000, after contracting sharply two weeks ago. However despite the sharp rise, the level of applications remains near pre-recession levels, indicating that hiring remains strong. Over the past year, the four-week average for applications has fallen 7.1%. The total number of people receiving benefits ticked up by 7,000 to 2.4 million. He number of claims is expected to rise to 299,000.
8. US Non-Farm Employment Change and Unemployment rate: Friday, 12:30. The US economy added only 142,000 jobs in August, the lowest figure this year after a 212,000 rise in July. The sharp fall came as a surprise to analysts, expecting a gain of 226,000. However, the unemployment rate declined to 6.1% from 6.2% in the previous month, in line with market forecast. The US had added an average of 212,000 jobs each month over the prior 12 months. While the monthly release was weaker than anticipated, the longer-term trend remains positive. Gains now average 207,000 over the last three months. A gain of 216,000 jobs is expected in the NFP report. It is also important to note the participation rate, which dropped back down to 62.8% last month and to average hourly earnings, which will likely show a rise of 0.2%.
9. US Trade Balance: Friday, 12:30. The U.S. trade deficit narrowed in July to its lowest level since January, reaching to a seasonally adjusted $40.5 billion, from $40.8 billion in June. Exports of automobiles, telecom equipment, industrial machines and semiconductors increased. Imports of oil products increased, but rising domestic production reduced the trade deficit in petroleum to its lowest in more than five years. The decline in trade deficit reinforces views that the US economy continues to strengthen. The U.S. trade deficit is expected to decline further to $41.0 billion in July.
10. US ISM Non-Manufacturing PMI: Friday, 14:00. The U.S. service sector continued to expand in August, reaching 59.6 after gaining 58.7 in July, beating forecast of 57.3. The majority of responders were optimistic regarding business conditions. The business activity index showed a reading of 65, up from July’s reading of 62.4; the new orders index hit 63.8, down from the previous reading of 64.9 and the employment index rose to 57.1, from July’s reading of 56. Overall, the ISM manufacturing and non-manufacturing reports suggest a continued improvement in the U.S. economy. US ISM Non-Manufacturing PMI is forecast to reach 58.5. This publication usually serves as a hint towards the NFP, but in this case it is only published after the event.

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