EUR/USD: Longer-Term Uptrend Likely, But Flash CPI Could Trigger a Pullback
Euro Forex Playbook for JUNE - Outlook update
DERBYSHIRE GB / June 28th, 2023 - Updated outlook information. Next update after the EA Flash CPI on Friday the 30th of June, or before if any significant event occurs.
This is the Euro Forex Playbook and is intended to be used as a guide to aid in your trade planning.
Macroeconomic Snapshot
The macroeconomics situation of the Euro Area (EA) is mostly indifferent but is likely to improve. This is expected to reduce downward pressure on the Euro’s value.
June Meeting of the European Central Banks, Governing Council
The Main Refinancing Operations rate was hiked by 0.25% in June to 4.00%, matching the 0.25% hike in May
The next meeting is on Thursday the 27th of July
The hiking cycle has risen as anticipated although is not expected to rise much further. This is likely to lead to stabilised bond yields which may limit their appeal to investors. This is expected to apply indifferent support / pressure on the Euro’s value.
GDP Growth Rate Third Estimate for Q1 2023
GDP in the EA for Q1 slowed to a 0.1% quarterly contraction from 0.0% in Q4 2022
The flash Q2 report is due on Monday the 31st of July
The economy has contracted against anticipations but is expected to grow again. This is likely to lead to increased stock market prices and a shift in investor preference away from safer assets, such as government bonds. This is expected to apply upward support on the Euro’s value.
CPI Final for May
CPI in the EA for May slowed a lot to 6.1% annual inflation from 7.0% in April
The flash June report is due on Friday the 30th of June
CPI has fallen faster than anticipated and is expected to fall much further. This is likely to lead to lower interest rates and a shift in investor preference away from safer assets, such as government bonds. This is expected to apply downward pressure on the Euro’s value.
Labour Report for April
Unemployment in the EA for April fell slightly to 6.5% from 6.6% in March
The May report is due on Friday the 30th of June
The labour market has improved slightly better than anticipated but is expected to deteriorate. This is likely to lead to reduced growth and a shift in investor preference towards safer assets, such as government bonds. This is expected to apply downward pressure on the Euro’s value.
Russian-EU Gas Dispute
The Russia-EU gas dispute has caused an increase in the cost of energy which has reduced the spending power of consumers and resulted in slower economic growth. This is likely to lead to reduced foreign investment in the stock market and is expected to apply downward pressure on the Euro’s value.
Russian Invasion of Ukraine
The war is having a detrimental effect on the global and EA economy by causing higher energy prices, supply chain disruptions, financial market volatility, refugee crisis and geopolitical uncertainty
EUR/USD (Four Weeks)
The EUR/USD has risen in the past four weeks, supported by central bank disparity. The Fed's hiking cycle is ending, weakening the dollar, while high inflation in the EA has warranted a more aggressive ECB.
EUR/USD Longer Term (Four Months)
The EUR/USD has formed a downtrend since the start of May when safe-haven flows strengthened the dollar as the US ran the risk of default due to the debt ceiling not being extended. This crisis was resolved at the end of May and the pair began a retracement which is now looking to test the 78.60% Fib. A move beyond the trend start at 1.108 will form an uptrend.
EUR/USD Outlook
The events to keep an eye on:
Tuesday the 27th of June
ECB President Legarde speaks “inflation is still too high”
US CB Consumer Confidence Big beat at 109.7 vs 103.9 exp. and prev. 102.5
Wednesday the 28th of June
ECB President Legarde speaks ECB Forum on Central Banking, in Sintra
Fed Chair Powell speaks ECB Forum on Central Banking, in Sintra
FOMC Member Goolsbee Speaks historically dovish regarding rates
Thursday the 29th of June
DE Prelim CPI m/m Improvement exp. at 0.2% vs. prev. -0.1%
Fed Chair Powell speaks Fourth Conference on Financial Stability hosted by the Bank of Spain
US GDP Q1 final Slight upward revision to 1.4% exp. from prev. 1.3%
Friday the 30th of June
EA Flash CPI Big improvement exp. at 5.6% from 6.1%
CME Group 30-Day Fed Fund futures
July: steady sentiment of a 0.25% hike, 75% in favour (prev. 75%)
September: holding sentiment of a hold, 70% in favour (20% for a 0.25% cut - prev. 15%)
Value of the EUR/USD to remain above 1.07 unless EA Flash CPI falls further than expected on Friday: The four week moves have been rising from 1.07 to 1.10. Events this week are favoured towards a stronger Euro as ECB Lagarde speeches are expected to be hawkish. However, there is a risk for a weaker Euro on Friday if the flash CPI comes in lower than expected as this would warrant a lower peak ECB Main Refinancing Rate.
Longer Term Value of the EUR/USD to remain above 1.06, uptrend formed on moves beyond 1.108: The four month moves have been falling 1.108 to 1.060 although has retraced to test 1.10. The macroeconomic situation suggests the downtrend is unlikely to extend which would indicate moves beyond 1.108 are eventually possible to form an uptrend.
Gavin Pearson
Retail trader since 2008
Specialises in forex G7 currencies
Funded account from the5ers.com
Member of the eToro Popular Investors Program
Regular contributor to FXStreet.com analysis and education pages
Jeepson Trading Fund
Returned 27% in 2022 and 8.6% in 2023 Q1
Forex focused
Copy Trading available at eToro
eToro
eToro is a social trading platform
Users can copy trades by clicking the "Copy" button on the profile page
Disclaimer
Past performance is not indicative of future results
Trading involves risk, and you could lose money
-end-