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Accendo’s Foreign Exchange Forecasts, Monday 30 April 2018

The strongest factors influencing the direction and momentum of the FX rate are major macroeconomic indicators, chief among them the changes in the key interest rates. Higher interest rates make the currency more attractive and lead to a stronger Pound.

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.

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

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

Weekly FX Rate & Inflation Tables

 

Macroeconomic Events

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

GBP

Main GBP driver this week will be the new round of Brexit negotiations, scheduled for Wednesday, 2 May. Working group headed by ECB President Mario Draghi and BoE Chairman Mark Carney will be working on a roadmap to reduce financial market turmoil in case of a so-called “hard Brexit” breakdown in talks.

Local UK elections, scheduled for Thursday, 3 May, could have an implication for the Pound by strengthening or weakening support for PM Theresa May’s Brexit policy.

UK Services PMI data released on Thursday, 3 May will give an indication if disappointing GDP growth reported last week was weather-related, or if the slowdown has deeper implications for UK economy (which would put further pressure on GBP).

EUR

Key Eurozone data this week will come on Thursday, 3 May at 10:00 when Eurozone inflation data is released.

Inflation data is one of the key factors ECB will use to determine if a change in policy (a hike from current negative rates) is warranted.

Current economist projections do not foresee ECB changing policy until 2020, but weaker than expected inflation number could change those expectations, putting pressure on the EUR.

USD

Major event to anticipate is the Fed’s key interest rate policy decision on Wednesday, 2 May at 19:00.

No change in policy is expected in May.

Economists expect (92.5% probability) rate hike to be implemented during June meeting (Source: Bloomberg, see table above).

Press conference is not scheduled and investors will pay close attention to specific language on inflation to understand chance of future rate hikes.

Other important events this week include release of US Non-Farm Payrolls on Friday, 4 May at 13:30.

Average hourly earnings are expected to rise 0.2% MoM in April, while jobs growth is expected to slow (likely due to poor weather) (Source: FT).

Key Data This Week

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Tuesday 1 May

09:30    Consumer Credit, PMI Manufacturing (UK)
15:00     ISM Manufacturing (US)
21:30     API Oil Inventories (US)

Wednesday 2 May

00:00   BRC Shop Prices (UK)
01:30    PMI Servcies (Japan)
02:45    Caixin PMI Manufacturing (China)
8-9am   PMI Manufacturing (Eurozone)
10:00    GDP (Eurozone)
19:00   Fed Interest Rate decision (US)

Thursday 3 May

09:30   PMI Services (UK)
10:00  Inflation (Eurozone)

14:45    PMI Services (US)
15:00    ISM Non-Manufacturing (US)

Friday 4 May

02:45    Caixin PMI Services (China)
8-9am:  PMI Services (Eurozone)
10:00     Retail Sales (Eurozone)
13:30    Non-Farm Payrolls (US)

GBP/USD (“Cable”)

Technicals

  • Cable has continued its downtrend to March lows, well off April’s high of 1.437
  • Worse than expected Q1 GDP growth (0.1% QoQ vs. 0.3% estimate) drove the latest leg lower
  • UK political instability (Home Secretary’s resignation + Brexit worries) added to negative momentum
  • Currently testing horizontal support at 1.372
  • A break below March-April support could result in a bearish double top reversal pattern
  • Will the retreat continue towards 1.354 (last seen in January)?
  • Or will we see a reversal back towards mid-April highs (1.434)?

GBP/EUR

Technicals

  • GBP retreating further from 2018 highs, mirroring sharp GBP/USD drop
  • UK/EU Customs Union negotiations could be key to further price movement
  • Will the Pound bounce off rising channel support at 1.298?
  • Or will the retreat continue beyond the early-March low of 1.119?

EUR/USD

Technicals

  • EUR broke through support at 1.209, testing new lows last seen in January 2018
  • Longer-term support at 1.203 could be the next test
  • If breached, next support at 1.189, last seen in December 2017
  • Will the downtrend continue into May?
  • Or will the pattern reverse to continue following longer-term ascending channel?
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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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