EUR/USD Forecast June 10-14 – Euro jumps as Fed rate comments, soft NFP


EUR/USD looked sharp last week, posting gains of 1.0%. It’s a quiet week, with just four events. Here is an outlook at the highlights and an updated technical analysis for EUR/USD.

ECB policymakers sent a dovish message to the markets after their policy meeting. The ECB surprised the markets by revising its forward guidance, saying that it would not raise interest rates prior to the middle of 2020. Previously, the bank had said that it would not hike rates before the spring of 2020. The delay is a response to weak economic conditions in the eurozone, as the global trade war has taken a toll on manufacturing and exports in Germany and the rest of the bloc.

As expected, ECB President Draghi said that ECB will pay banks to borrow funds from the central bank, if the funds are passed on to consumers and small businesses. This is a stimulus measure with the aim of boosting spending in the private sector. As well, the bank upwardly revised its 2019 outlooks for growth and inflation. In March, the ECB forecast GDP at 1.1% and inflation at 1.2% – these were revised to 1.2% and 1.3%, respectively.

It was a tough week for the U.S. dollar. Nonfarm payrolls were dismal, falling to just 75 thousand. This was well below the forecast of 177 thousand. Earlier in the week, the greenback retreated after comments from senior Federal Reserve officials strongly hinted at a rate cut. In recent months, the Fed has presented a neutral stance regarding rate moves, but made a sharp U-turn last week in favor of an easing bias. On Tuesday, Fed chair Jerome Powell said that the Fed would “act as appropriate to sustain the expansion”, and analysts noted that he did not mention his “patient” approach to monetary policy, which has been a buzzword in Powell’s recent comments. Powell’s remarks echoed comments from James Bullard, president of the St. Louis Fed. Bullard stated that the Fed might have to lower rates shortly due to low inflation and the ongoing trade war with China. Bullard added that the current benchmark rate, which is at a range of 2.25% to 2.50%, is too high for current economic conditions, and recommended lowering rates in order to stabilize the economy.

EUR/USD daily chart with support and resistance lines on it. Click to enlarge:

  1. Sentix Investor Confidence: Tuesday, 8:30. This survey of 2,800 analysts and investors surprised the markets, posting a score of 5.3 in May. This ended a nasty streak of five straight declines. The June forecast stands at 2.3.
  2. German Final CPI: Thursday, 6:00. The preliminary estimate for April showed a small increase of 0.2%. The final measure will likely confirm it. Any change in the German number will impact the all-European final figure which will be released next week.
  3. Industrial Production: Thursday, 9:00. Industrial output for the whole euro-zone is published after the main countries will have published their own data. Still, the overall eurozone reading tends to surprise the markets. The indicator came in at -0.3% in March, its fourth decline in five months. The markets are braced for more bad news in April, with an estimate of -0.4%.
  4. French Final CPI: Friday, 6:45. Inflation in the second-largest economy in Europe slowed to 0.2% m/m in May according to the initial read. The final release is expected to remain unchanged at 0.2%.

* All times are GMT

EUR/USD Technical analysis

Technical lines from top to bottom:

With EUR/USD posting sharp gains last week, we start at higher levels:

We start with resistance at 1.1750. Close by, 1.1720 is a veteran line that worked in both directions and it capped the pair in mid-September.

1.1620 has held in resistance since early October. 1.1570 is next.

1.1515 was a high point at the end of January. 1.1435 was a low point at the beginning of February.

1.1390 was a stepping stone on the way up in late January and capped EUR/USD earlier. This is followed by 1.1345, which was tested late in the week.

1.1290 has switched to a support role. Close by, 1.1270 was a double-bottom in December 2018.

The pair broke through resistance at 1.1215 for the first time since mid-May.

1.1119 (mentioned last week) has some breathing room in support after sharp gains by EUR/USD last week.

1.1025 was a cap back in May 2017.

1.0950 is the final support level for now.

I am bearish on EUR/USD

Dovish comments from the Fed boosted the euro last week, but this could prove to be a brief spike for the euro. The U.S. economy remains in great shape and the ECB has introduced new stimulus and delayed the timing for a rate hike. This stance could sour investors on the euro.

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Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.

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