Forex Weekly Outlook June 20-24

Risk off sentiment dominated during most of the week, but things reversed later on. It’s all related to the UK’s EU Referendum which happens in the upcoming week. Apart from this,  two testimonies from Janet Yellen, US  Durable Goods Orders and German surveys will play a role around the big vote. These are the highlights on forex calendar. Join us as we explore the market-movers of this week.

The Federal Reserve held its monthly monetary policy meeting, deciding to keep  rates unchanged amid worries about slowing job growth, but left the door open for two more rate hikes this year. The tone was relatively dovish, with concerns about the job market and no hawkish dissenters. However,  the Fed grabbed the headlines only for a short while, as events related to the British EU Referendum took over.  Mounting evidence for Brexit momentum pushed the pound and euro lower as the dollar and yen soared. However, the tragic murder of UK MP Jo Cox reversed some of the moves. Elsewhere, Australia ´s jobs report was OK and New Zealand ´s GDP beat expectations.  Let’s start:

1. German ZEW Economic Sentiment: Tuesday, 9:00. German economic sentiment declined unexpectedly in May to 6.4 from 11.2 in the previous month. The uncertainty around the “Brexit” issue clouded economic outlook. Analysts had forecast a score of 12.1. Meanwhile, the current situation index increased to 53.1 from 47.7 in the prior month, however the current pick-up in consumer spending is probably related to low inflation and is expected to reverse in the coming months. Investor’s confidence is expected to drop further to 5.1 this time.
2. Janet Yellen speaks: Tuesday and Wednesday at 14:00. Federal Reserve  Chair  Janet Yellen  will testify before the Senate Banking Committee, in Washington. She may refer to the central bank’s latest decision to keep monetary policy unchanged in June. Yellen said at the press conference following the bank’s meeting, that Brexit concerns and slowing jobs report were among the reasons for the Fed’s decision to leave rates unchanged and lowering economic growth forecasts for 2016 and 2017.
3. US Crude Oil Inventories: Wednesday, 14:30. The Fed’s latest decision to leave rates unchanged while lowering economic growth forecasts for 2016 and 2017weighed on crude oil prices aside from the Brexit concerns. U.S. crude oil inventories fell by 933,000 barrels, while analysts expected 2.3 million-barrel draws. Economists believe that oil prices and the energy market will continue to follow the macro-economic environment and global equity markets.
4. British EU Referendum: Thursday, with polls closing at 21:00 GMT and clear results due early on Friday. Brits will decide on whether to remain  in the European Union or to leave it. Markets have a clear preference for the status quo which implies more certainty and less trade barriers. While a vote to leave will not have immediate actual implications, it will certainly rattle financial markets and trigger high uncertainty. The political and economical situation in the euro-zone  is at a low point: debt crises haven’t been fully solved, the refugee crisis is tearing the continent apart and confidence in Brussels is also low. A decision of the UK to leave, even if it isn’t a euro-zone  member, could deal a death blow to the already fragile union, with potential damage to trade and perhaps more countries thinking of leaving. We have seen how opinion polls have moved the euro in  addition to the pound in recent weeks.
   Currently, polls show a momentum towards the Leave campaign with an advantage of 48% against 43%, totally different from what we’ve seen several weeks ago. However, the still close polls,  the tragic murder of MP Jo Cox and the potential of undecided voters to “stick with the devil they know” are more  likely to lead to a small victory for Remain. In case of a vote to leave, the euro will fall  alongside the  plunging pound. But also with a narrow win for staying, it will take a long time for the wounds to heal.  More:
   All the Brexit updates in one place
   Is your broker Brexit ready? Some brokers are changing margins also for the euro
5. US Unemployment Claims: Thursday, 12:30. The number of Americans filing initial claims for unemployment benefits edged up more than expected last week to 277,000, after posting 268,000 in the previous week, missing analysts’ forecast for 269,000 claims addition. Nevertheless, the underlying trend remained in compliance with strong labor market conditions. Analysts had expected a smaller rise to 267,000. The four-week moving average of claims declined 250 to 269,250 last week. Tis release came day after the Fed downgraded its assessment of the labor market noting the pace of growth weakened while growth in economic activity accelerated. But with job openings near record highs, both economists and Fed officials anticipate job growth to recover after the modest jobs gain in May. The number of new claims is expected to reach 271,000 this week.
6. German Ifo Business Climate: Friday, 8:00. German business sentiment surged in May to a five- month high, rising to 107.7 from 106.7 in April. The release suggests that growth momentum in Europe’s largest economy remains strong.  Economists expected a milder increase to 106.9. The upbeat business survey came a day after the investor confidence release, showing concerns about Germany’s economic outlook after UK’s possible exit from the Eurozone. The current economic conditions index increased to 114.2 from 113.2. The Outlook index climbed to 101.6 from 100.5. German business sentiment is expected to reach 107.6 in June.
7. US Durable Goods Orders: Friday, 12:30. Orders for long-lasting products edged up in April due to a 64% surge in civilian-aircraft orders. Durable Goods Orders gained 3.4% from 1.9% in the previous month. Economists expected only a small gain of 0.3. However, orders for nondefense capital goods excluding aircraft fell 0.8% during April. Excluding transportation, new orders in April increased a modest 0.4% due to lower domestic orders influenced by subdued oil prices. Exports were also weak due to the strong dollar and weakness overseas. Core orders are forecast to rise 0.1%.

That’s it for the major events this week. Stay tuned for coverage on specific currencies

*All times are GMT.

Our latest podcast is titled  Oil, Brexit and the Big Fed Preview

Follow us on Sticher or on iTunes