Will the Euro stagnate like its economic outlook?
Euro Playbook for June
DERBYSHIRE GB / JUNE 11th 2023 - This is the Euro Forex Playbook and is intended to be used as a guide to aid in your trade planning.
Macroeconomic Snapshot
The outlook for the economy of the Euro Area can be characterised as indifferent slight deterioration: this means that the data suggests the economy will deteriorate and mostly at a rate that the markets are expecting.
May Meeting of the European Central Banks, Governing Council
The Main Refinancing Operations rate was hiked on the 4th of May by 0.25% to 3.75%
The data analysed indicates that the Main Refinancing Operations Rate has risen as anticipated but is not expected to rise much further: the outlook can be characterised as indifferent indifference
The next meeting is on Thursday the 15th of June
GDP Growth Rate Third Estimate for Q1 2023
GDP in the EA for Q1 contracted at a quarterly rate of -0.1% which is lower than the 0.00% in Q4 2022
The data analysed indicates that the economy has shrunk against expectations although is expected to grow again: the outlook can be characterised as slightly pessimistic deterioration
The flash Q2 report is due on Monday the 31st of July
CPI Flash for May
Annual CPI in the EA for May inflated at a rate of 6.1% which is a lot slower than the 7.0% in April
The data analysed indicates that CPI has fallen faster than anticipated and is expected to fall much further: the outlook can be characterised as optimistic improvement
The final May report is due on Friday the 16th of June
Labour Report for April
Unemployment in the UK for April is 6.5% which is slightly lower than the 6.6% in March
The data analysed indicates that unemployment has fallen as anticipated and is expected to remain at these levels: the outlook can be characterised as indifferent indifference
The May report is due on Friday the 30th of June
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
Previous Three Months (March to May)
The Euro has gained value in the past three months from March to May, however it did start to fall from the highest level of 1.10 in April. This weakness can be attributed to a more valuable dollar as investors pricing in interest rates staying higher for longer. This is because the Fed has not made any dovish statements or considered cutting rates after the banking crisis.
Month to Date (June)
The EUro has held value through the early start of this month having bounced between 1.06 and 1.07 as traders price in a pause from the Fed’s hiking cycle. However, the most recent NFP report showed more jobs have been added than was expected and so the case for a hike has become stronger and the pair may move back to 1.06 or below.
Outlook
The events to keep an eye on:
Tuesday June 13th:
US CPI to fall to 4.7% from 4.9%
Wednesday June 14th
Fed Policy Meeting (pause expected at 5.00%-5.25% although there is some doubt in favour of a hike)
Thursday June 15th
ECB Policy Meeting (0.25% hike expected to 4.00%)
CME Group 30-Day Fed Fund futures
June: holding sentiment for a hold, 70% in favour
July: holding sentiment of a 0.25% hike, 50% in favour
September: holding sentiment of a hold, 50% in favour
Long Term Value of the Euro to Remain Steady: As the EA economy stagnates, significant investors are unlikely to return. Moves are expected to remain below the three month high of 1.10 and above the three month low of 1.05.
Short Term Value of the Euro to Remain Steady: As The ECB are continuing to hike but at a slower pace and at lower levels than other central banks. This may be a positive to consumers but could limit the fall of inflation. Moves are expected to remain near current levels of between 1.06 and 1.07.
Gavin Pearson
Retail trader since 2008
Specialises in forex G7 currencies
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