EUR/USD Weekly Forecast April 10-14
Frankfurt (April 9) EUR/USD extended lower for a second consecutive weekly decline. Since reversing from the 200-period daily moving average on March 27th the pair trades lower by about 300 points to erase roughly three-quarters of the March advance.
Downside momentum slowed significantly over the past week with the bulk of the weekly decline occurring on Friday following the US jobs report. The single day decline accounted for three-quarters of the weekly decline.
The combination of slowing momentum and important technical support creates the potential for a reversal of the near-term trend in the upcoming week. Moreover, EUR/USD remains in an uptrend for the year, a sustained break of important support at 1.0526 would be required to shift the medium-term directional bias.
Friday’s NFP report was mixed. There was a shortfall in the March employment gain, average hourly earnings were as expected with an upward revision for the prior month and the unemployment rate dropped lower. The report is unlikely to alter the Fed’s view concerning monetary policy tightening especially with the unemployment rate improving to levels not seen since ahead of the financial crisis.
The ECB meeting minutes and a speech by President Mario Draghi confirmed that the central bank is not looking to raise rates ahead of completing quantitative easing. This dismissed earlier reports that the bank was looking to hike rates and expectations for the April meeting will be for policy to remain unchanged.
The central bank acknowledged an improvement in inflation but indicated that there was not sufficient evidence that levels would stay around 2% on a sustained basis. The ECB stated that considerable accommodation was still required until such evidence is presented.
The latest COT report revealed a small build in euro net short positioning by non-commercials following a major unwinding in March. As of April 4th, the position stood at $1.5 billion from $1.1 billion in the prior week. There was a marginal draw in the US Dollar net long positioning.
As euro positioning is no longer at extreme levels, the risk of abrupt fluctuations in the currency is lacking in the absence of a dramatic shift in fundamentals.
In the upcoming week, Fed chair Yellen speaks at the University of Michigan on Monday. Historically, her speeches at educational institutions do not commonly involve discussions of monetary policy. In the event she is questioned about the Fed’s latest stance the focus will tend to be on shrinking the balance sheet and her feedback on the latest jobs report.
The highlight of the week is likely to be the US consumer price index release scheduled on Friday. After strong arguments from Fed member Kashkari, who dissented in March, about a lack of upward pressure on core inflation, the core CPI number will be important.
Kashkari speaks on Tuesday and as he is clearly the most dovish Fed member his reaction to the improvement in the unemployment rate will be important in the event it is discussed.
Other releases that stand to cause volatility in EUR/USD include the US producer price index release on Thursday and US retail sales on Friday.
EUR/USD declined to a trendline that connects lows from the start of the year with a low posted in early March. There is confluence as a 76.4% Fibonacci retracement from March lows to highs is within proximity of the trendline.
There is a strong possibility there will be a drop below the trendline on an intraday basis in hunt of liquidity, however, the importance in the upcoming week will be the reaction around current support on a sustained basis.
While above the trendline, the first level of resistance is at 1.0627 as it held the pair higher in late January and lower in from late February to early March. The second level of resistance at 1.0679 marks a spike high from late February and held the pair lower in the past week on a 4-hour chart.
In the event of a downside break of the rising trendline, major support is seen at 1.0526 as it held the pair higher in late November and the first half of December.
Source: EconomicCalendar
