Saturday, September 21, 2013

EUR/USD Forecast (September 23-27)

EUR/USD certainly enjoyed the surprising NO Taper decision by the US Fed, and jumped to a much higher range. Can the momentum continue as the focus shifts back to Europe? German Federal Elections, Flash PMIs and Draghi‘s speech are the main events this week.
Ben Bernanke and his colleagues surprised with the decision NOT to taper QE. This boosted EUR/USD to levels last seen in February as the dollar retreated. Germans go to vote this week vote in federal elections, where Angela Merkel is expected to be reelected. However, she might have to settle for a grand coalition with the opposition rather than see a repeat of the current government, and this might cause uncertainty. German economic sentiment jumped from 42.0 to 49.6 points in August to the best level since April 2010, further evidence to the pick-up in the Eurozone.

1. German Federal Elections: Sunday, results expected before markets open. A German federal election will determine the 598 members of the 18th Bundestag, the main federal legislative house of Germany. Germans pick a constituency candidate with their first vote, and the second vote determines the relative strength of the parties in the Bundestag. Angela Merkel, whose conservative bloc constitutes around 40% seats, needs the FDP to do well in the federal vote to avoid having to turn to the opposition Social Democrats (SPD). A grand left-right coalition is desired by many voters, but such a government could prove unstable.

2. Mario Draghi speaks: Monday, 9:00.  ECB President Mario Draghi  is scheduled to speak at the Committee on Economic and Monetary Affairs, in Brussels. His words will cause volatility in the markets. Draghi was very careful about the euro-zone recovery and called it “green”.

3. Flash PMIs: Monday. Manufacturing and services Purchasing Managers’ Index (PMI) releases continued to rise in the euro-area in August. German manufacturing sector improved to 52, from 50.7 in July, while analysts predicted an increase to 51.1. German services PMI advanced to 52.4 in the month, after an expansion of 51.3 in the previous month. Analysts expected a reading of 51.7. French manufacturing remained unchanged at 49.7 during August from the previous month. Regarding the services sector, PMI declined to 47.7, from 48.6 in July. Flash manufacturing PMI in the euro zone picked up to 51.3 in August, from 50.3 in July, while the flash services PMI flipped to expansion, reaching 51.0 in the month, from 49.8 reported in July. All in all, the Euro-area gained momentum in August with a two-year high expansion rate. Pick-up is expected to continue in the euro-area: French manufacturing sector is expected to reach 50.2, while services are climb to expand to 49.3. German Manufacturing is expected to edge up to 52.3, and Services to 53.2. The Eurozone manufacturing is expected to expand to 51.8 while services are expected to rise to 51.1.

4. German Ifo Business Climate: Tuesday, 8:00. The German Ifo Business Climate index advanced to 107.5 in August, up from 106.2 in July, rising above the 107.1 expected by analysts. Optimism among companies on future business developments increased indicating, German business activity picks up pace. Companies increase their investments, which is a good sign for next year’s growth rate. A further increase to 108.4 is forecasted.

5. Belgium NBB Business Climate: Tuesday, 13:00. Business confidence in Belgium, made a noticeable improvement in August, rising to -8.6 points from -12.0 in July. The reading surpassed predictions for a -11.1 reading. This reading crossed the -10 line, separating between growth and no growth, for the first time in two years. This is another good sign that the Euro zone is improving. Business confidence in Belgium is expected to further improve to -7.1.

6. GfK German Consumer Climate: Wednesday, 6:00. German consumer confidence declined slightly to 6.9 in August, from 7.0 in July, but remained close to its highest level in nearly six years. Analysts expected a small rise to 7.1but consumers appeared to be less optimistic, regarding inflation and the economic outlook despite encouraging data showing a boost in growth in the second quarter. A small rise to 7.1 is anticipated this time.

7. M3 Money Supply: Thursday, 8:00. The amount of domestic currency in circulation in the euro area fell less-than-expected in July, reaching 2.2% from 2.4% in the previous month, while analysts expected a drop to 2.0%. Loans to private sector narrowed by 1.9% on a yearly base in July, faster than a 1.6% decrease in June. Lending for house purchase, the most important component of household loans, increased 0.7% year-on-year. An increase to 2.3% is expected.

8. German CPI: Friday. Consumer prices in Germany remained unchanged in August, and the annual rate is expected to reach 1.5%. Prices were driven mainly by food and alcohol and tobacco prices. Energy also added upward price pressure to the index, making an annual 0.4% contribution. Overall services inflation was recorded at a an annual rate of 1.6%. CPI is expected to remain unchanged now.

9. French Consumer Spending: Friday, 6:45. French consumers spent less in June following May’s boost in consumption. French consumer spending declined 0.8 % in June mainly due to reduced energy spending as the weather got better after a cold May. Analysts expected a slight rise of 0.1% in June. Overall, consumer spending advanced 0.3% in the second quarter, amid higher energy spending but still going in line with government forecasts that the economy may have exited a shallow recession. Another rise of 0.1% is anticipated.

*All times are GMT

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