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Accendo’s Foreign Exchange Forecasts, Monday 14 May 2018

The strongest factors influencing the direction and momentum of the FX rate are major macroeconomic indicators, chief among them changes in the key interest rates. Higher interest rates tend to make the currency more attractive, increasing demand and strengthening it.

In the UK, interest rate policy is determined by the Bank of England’s (BoE) Monetary Policy Committee (MPC), which meets several times a year and whose decisions are closely watched by FX traders and financial markets.

In the US, key interest rate decision-making body is the Federal Reserve’s (Fed) Federal Open Market Committee (FOMC), while in the Eurozone it is the European Central Bank (ECB) and its Governing Council.

Other key factors influencing FX rates are macroeconomic data on inflation, economic growth and wages.

Weekly FX Interest Rate & Inflation Tables

 

 

Macroeconomic Events

The following events this week could have a major impact on FX markets.

GBP

Brexit talks may remain the key driver for the Pound this week, PM Theresa May continuing to struggle with cabinet infighting, key ministers still split over the potential for a “customs partnership” with EU.

UK unemployment and other labour market data (Tuesday, May 15) could also have major influence on GBP this week.

EUR

The biggest EUR impact this week will likely come from the political sphere, as EU continues negotiations with UK over Brexit, as well as continuing the simmering rule-of-law disputes with Poland and Hungary.

Formation of the new Italian government could have the most outsize influence, as political parties are still wrangling over formation of a cabinet and the name of Prime Minister. The deal looks likely to be struck this week, as negotiations have shown progress over weekend.

USD

Key USD influencer this week will be the US Retail Sales data on Tuesday, May 15, as well US Housing Starts/Permits on Wednesday, May 16. Both are important leading indicators for the state of US economy and could provide a boost to USD, which has sagged recently on market uncertainty about the number and timing for further Fed interest rate hikes later in the year.

With multiple Fed speakers scheduled for the week, we may see some clarification regarding interest rate policy, which could provide extra push to the Dollar against both the Sterling and the Euro.

Key Data This Week

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Tuesday 15 May

03:00     Retail Sales, Industrial Production (China)
07:00     GDP (Germany)
09:30     Jobless Claims, Weekly Earnings (UK)
10:00     Ind. Prod., GDP (E/zone), ZEW Surveys (Germany)
13:30     Retail Sales, Business Inventories (US)
21:30     API Oil Inventories (US)

Wednesday 16 May

02:30   New Home Prices (China)
07:00   Inflation (Germany)
10:00   Inflation (E/zone)
13:30   Housing Starts/Permits (US)
15:30   DoE Oil Inventories (US)

Thursday 17 May

13:30   US Philly Fed Report

Friday 18 May

07:00   PPI (Germany)

GBP/USD (“Cable”)

Technicals

  • Cable breached support at 1.361
  • Downtrend stalled, with former support now turned resistance
  • RSI oversold, but moving up into neutral (Bullish indicator)
  • Will the retreat continue to 1.33 low of December 2017?
  • Or will the Cable dip back over 1.361 resistance for a leg higher?

GBP/EUR

Technicals

  • GBP/EUR bumping against rising support at 1.134 after sharp drop last week
  • BoE decision not to hike rates continues giving strength to downside pressure
  • Technicals are conflicting, with Stochastics nearly oversold (i.e. bullish), while RSI is more neutral
  • Will the Pound bounce off rising channel support at 1.325?
  • Or will the selloff continue toward Oct 2017 lows of 1.114?

EUR/USD

Technicals

  • Euro bounced off horizontal support at 1.184 to start a leg higher
  • Potential upside going as far as 1.235 falling highs resistance
  • Stochastics and RSI still moving toward neutral, giving Bulls a bit more momentum
  • Will the EUR/USD retrace April-May fall to claw back part of the losses?
  • Or will the rise prove short-lived and stop around 1.208?
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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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