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Accendo’s Foreign Exchange Forecasts, Monday 26 June

Macro observations

After two and a half weeks of stalemate, the Conservative-DUP ‘confidence and supply’ agreement has finally been signed, opening the door to a Conservative minority-led government to be officially formed.

With the support of the 10 DUP MPs, the Tories will now effectively have a working majority in parliament, crucial as the early stages of Brexit talks continue. The Northern Irish party will support the government on issues including the Budget, Brexit, security and confidence votes.

Sterling initially rallied upon the announcement of the deal, as some certainty finally emerges after the inconclusive election result. However, the shaky nature of the planned partnership, falling short of a full coalition, means that the Conservative position of power remains weak. The ongoing opening round of exchanges between UK and EU negotiating teams, and the continued reaction to the Grenfell tragedy, could end up being crucial indicators as to the longevity and effectiveness of the new government.

The US dollar will continue to be driven by investor expectations for the path of Federal Reserve rate hikes and the removal of accomodative policy, most notably the trimming of of its QE-inspired bloated balance sheet. While soft data – surveys and confidence measures – have remained supportive of the continuation of the tightening cycle, hard data – macroeconomic indicators such as inflation and employment – have weakened and brought into question whether the Fed’s current course will be maintained.

Therefore Thursday’s final reading of Q1 GDP will be crucial to whether the US dollar closes higher or lower for the week, as markets look for confirmation of a 1.2% increase over the first three months of the year. While this is significantly lower than Q3’16’s 3.5% and Q4’s 2.1% growth, May’s 1.2% reading was an increase on April’s initial reading and higher than the equivalent Q1 reading in 2016. Should Thursday’s final reading show improvement from the first and second, the USD will likely rally, although a weaker than expected reading may increase scepticism that the Fed will not pursue an aggressive tightening policy.

On Tuesday, speeches from voting members Harker (hawk; 4:15pm), Kashkari (dove; 11:30pm) and, perhaps most importantly, Chair Janet Yellen (6pm), will also likely drive the greenback as one of the most hawkish voting members comes up against the most dovish – Kashkari has twice been the only dissenter against raising interest rates – while the always influential Yellen shares her own thoughts on policy.

Macroeconomic data will also be key for the Euro, as inflation readings from Eurozone engine room Germany alongside the headline economic area are released on Thursday and Friday respectively.

The former is seen continuing its move lower from April’s 2% reading to 1.4% in June, while the latter is also expected to retreat from its June reading (1.9%) to 1.2%. Importantly, should they be confirmed, both readings would be the lowest since November and could therefore result in the ECB edging back from its hawkish turn in rhetoric that emerged at the policy meeting at the start of this month. Will the dovish contingent find their voices once again?


Key data this week (Sign up here to receive our daily live macro-calendar)

Tuesday 27 June

UK Economic Announcements
00:05    Gfk Consumer Confidence
09:30    BoE Financial Stability Report
11:00       CBI Sales

Intl Economic Announcements
14:00      S&P/Case-Shiller Home Price (US)
15:00    Richmond Fed Manufacturing Index & Consumer Confidence (US)

Wednesday 28 June

Intl Economic Announcements
12:00    MBA Mortgage Applications (US)
13:30    Wholesale Inventories (US)
15:00    Pending Home Sales (US)
15:30    Oil Inventories (US)

Thursday 29 June

UK Economic Announcements
07:00    Nationwide House Prices
09:30    Mortgage Approvals & Consumer Credit

Intl Economic Announcements
10:00    Confidence Indicators (EZ)
13:00    CPI (DE)
13:30    GDP (US)

Friday 30 June

UK Economic Announcements
09:30    GDP & Business Investment 

Intl Economic Announcements
00:30      CPI & Unemployment (JP)
02:00    Manufacturing & Non-Manufacturing PMI (CN)
07:00      Retail Sales (DE)
08:55     Unemployment (DE)
10:00     CPI (EZ)
13:30     PCE, Personal Income & Spending (US)
14:45       Chicago PMI (US
15:00       Michigan Consumer Sentiment (US)
18:00      Baker Hughes Rig Count (US)


GBP/USD (‘Cable’)

Technicals

  • Rally from shallow rising lows support at $1.271 faltering. Second bounce or break lower?
  • Stochastics breakout from falling highs resistance
  • Momentum turned positive for first time in a month
  • Directional indicators diverging bearishly

GBP/EUR


Technicals

  • Despite testing 6-week falling highs resistance, no comprehensive breakout has been made
  • Will GBP/EUR break higher or retreat back to channel floor?
  • Momentum turned positive for first time since early May
  • Directional indicators converging bullishly

EUR/USD

Technicals

  • Euro testing $1.1175 support. Bounce or breakdown?
  • Stochastics recovered from oversold
  • Momentum remains negative but off worst levels
  • Bearish kiss by directional indicators

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This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.

Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research

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