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Home / Blog / blog / Accendo’s Foreign Exchange Forecasts, Monday 25 June 2018

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Accendo’s Foreign Exchange Forecasts, Monday 25 June 2018

The strongest factors influencing the direction and momentum of Foreign Exchange (FX) rates are changes in the key interest rates, themselves highly sensitive to macroeconomic data such as inflation and economic growth, as well as geopolitical concerns. Higher interest rates tend to render the currency more attractive (and vice versa) which in turn can result in it strengthening versus other currencies.

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 all FX traders, but especially those trading Pound Sterling (GBP).

In the US, key interest rate decision-making body is the Federal Reserve’s (Fed) Federal Open Market Committee (FOMC), influencing the US Dollar (USD), while for the single currency Euro (EUR) in the Eurozone, it is the European Central Bank (ECB).

Weekly FX Interest Rate & Inflation Tables

 

Key Drivers

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

GBP

In a sparse week for UK macroeconomic data, most FX traders will be expecting final UK Q1 GDP (Fri, 9:30am) figures to give some movement to the Pound. Most economists forecast the final reading to confirm initial estimates, showing weak 1.2% YoY growth in Q1 2018, down from 1.4% in Q4 last year. Continued UK economic weakness has so far delayed any BoE interest rate hikes, but the last week’s surprisingly hawkish appraisal is partly based on expectations of stronger UK economy in the second half of the year.

Last week, the BoE Chief Economist Andy Haldane joined MPC hawks in voting for an interest rate hike (increasing the number of dissenting MPC members to 3 out of 9), citing, in part, his confidence that UK economy is rebounding from a weak start this year. Markets will be looking to see if final growth figures, as well as the BoE’s Financial Stability Report (Weds, 9:30am) support his argument. Additional hawkish comments from Bank Governor Carney (presenting the Report) could help the Pound further.

As usual, Brexit negotiations cast a shadow over the Pound. While PM Theresa May was able to successfully steward the EU Withdrawal Bill through Parliament, much work remains ahead in negotiations with Brussels. With EU leaders gathering for an important 2-day summit (Thurs-Fri)Theresa May will get a chance to present any new Brexit proposals.

News of progress on Brexit could help the GBP, but keep in mind that any promises May makes to EU peers will need to be later agreed with cabinet Brexit hardliners, whom May is meeting in early July for a conference at PM’s Chequers residence.

EUR

In contrast to the Pound, the single currency Euro will have a busy macroeconomic week, with multiple important indicators of European economic health scheduled for release.

Thursday will be particularly busy, with the release of business and consumer confidence figures from Germany (Thurs, 7am) and the Eurozone (Thurs, 10am), both expected to fall in June. In a further sign of Eurozone economic weakness, German consumer price inflation (Thurs, 1pm) is expected to fall in June after a surprise rise in May, to put further strain on the EUR.

This could be echoed by Eurozone inflation (Fri, 10am), where flash YoY figures are forecast to show a fall in the headline number (1.7% from 1.9% in May), while the less volatile and more important core metric is expected slightly stronger at 1.2% (vs. 1.1% in May). In more positive news for Europe, however, German unemployment (Fri, 8:55am) is expected to hold steady at 5.2% in June. Stronger than expected Euro Area inflation and sentiment figures from the Continent could be beneficial for the Euro.

In political news, EU leaders meet for a 2-day summit (Thurs-Fri) to discuss EU’s asylum policy, Brexit and trade wars. While migration is the focus (with Merkel under fire at home and Italy pressing for stricter rules), Eurozone reform, also championed by Italian Euroskeptics, will also be featured with potential for sharp EUR movements as a consequence.

USD

In State-side news, all eyes will be on final Q1 US GDP data (Thurs, 1:30pm). Final figures are expected to confirm a slightly weaker (albeit still very healthy) 2nd reading at 2.2% YoY US growth, down from 2.9% growth in the previous quarter. These slightly disappointing US figures come in spite of largely strong US data this quarter and could send the USD lower, if confirmed.

Some additional pressure on USD could come from Personal Income & Spending (Fri, 1:30pm), with May incomes expected stronger MoM (0.4% vs. 0.3%), while spending is expected slightly weaker (0.4% vs. 0.6% last month). Personal spending figures have inflationary read-across and thus influence USD FX pairs, with a worse than expected reading hurting the dollar.

In geopolitical news, keep an eye of any new salvos in US-China and US-EU trade confrontations. With US President Donald Trump escalating his threats to put significant tariffs on German automotive products and restricting Chinese hi-tech investments in US businesses, any development in this area could have a impact on USD crosses. Markets are looking for clarity and stability before supporting the USD and the EUR, with any sign of a trade détente beneficial to the currencies.

Key Data This Week

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Tuesday 26 June

Major Intl Economic Data
15:00     Consumer Confidence (US)

Wednesday 27 June

Major UK Economic Data
09:30     BoE Financial Stability Report

Major Intl Economic Data
13:30     Durable Goods Orders (US)
15:00     Pending Homes Sales (US)

Thursday 28 June

Major UK Economic Data
07:00     Nationwide House Prices

Major Intl Economic Data
–            EU Summit
7:00     GfK Consumer Confidence (Germany)
10:00     Business Confidence (Eurozone)
13:00     Consumer Price Inflation (Germany)
13:30     Q1 Final GDP (US)

Friday 29 June

Major UK Economic Data
00:00     GFK Consumer Confidence
09:30     Q1 Final GDP

Major Intl Economic Data
–            EU Summit
10:00     Consumer Price Inflation (Eurozone)
13:30     Personal Income & Spending (US)
15:00     Consumer Confidence (US)

GBP/USD (“Cable”)

Technicals

  • Cable in June downtrend (an extension of the larger falling channel since April)
  • Tested November 2017 support, but bounced back
  • Hawkish BoE statement aided the rebound
  • RSI and Stochastics out of oversold area, moving higher (=Bullish sign)
  • Will the Cable continue moving to June highs?
  • Or will it resume the downtrend and once again test November support?

GBP/EUR

Technicals

  • Pound in rising channel since late April
  • Trending closer to channel floor, with 2 tests in early June
  • Hawkish Bank of England and ECB decision to taper stimulus not enough to help GBP
  • Technical indicators neutral, not indicating a clear direction
  • Will continuing GBP weakness lead to another test of channel floor?
  • Or will GBP regain some strength after EU Summit?

EUR/USD

Technicals

  • EUR consolidating, 1 week uptrend
  • Made several tests of rising highs resistance
  • A break above Friday’s high of 1.167 could signal a Bullish breakout
  • Will the EUR bounce back from resistance back to June lows?
  • Or will the EUR/USD uptrend continue back to late May highs??
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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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