EURUSD briefly breached 23.6% fib reaction (1.2555-1.1510 correction) on Wednesday. Once again it will be quiet regarding Tier-1 data releases, and that will leave investors’ focus on next week’s Fed and ECB press conference.
Spain and Italian Services sectors are continued to expand during May whereas France and Germany shifted down a gear during the same period. We could expect France and Germany growth could rebound in June.
According to Chris Williamson, Chief Business Economist at IHS Markit said “The pace of eurozone economic growth sank to a one-and-a-half year low in May, and has now slowed continually since January’s peak to suggest that the region is on course for its worst quarter since 2016.
Chris also said, “With the economic indicators turning down at the same time as political uncertainty has spiked higher, the eurozone’s outlook has darkened dramatically compared to the sunny forecast seen at the start of the year.”
• Spain Services PMI rose to a three-month high of 56.4 in May, from 55.6 in April
• Italian Services PMI posted 53.1 in May, up from 52.6 in April
• France Services PMI down to 54.3 in May, from 57.4 in April
• German Services PMI fall from 53.0 in April to 52.1, its lowest reading since September 2016
• At a 16-month low of 53.8, the final Eurozone PMI Services Business Activity Index was below April’s 54.7 and the earlier flash estimate of 53.9
Turning to central bank’s policy meeting, RBA remained on hold whereas RBI increased the interest by 0.25%. It is widely accepted the Federal Reserve will hikes interest rates again in June 12-13 meeting. As we pointed in our earlier article, we remain to our forecast, “expect four Fed hikes in 2018, but more confirmation will be available at the June meeting”.
Moving to ECB’s June 14 meeting, we could expect a hawkish twist and remained to our EURUSD bullish view. According to Peter Praet, Member of the Executive Board of the ECB said: “ Next week, the Governing Council will have to assess whether progress so far has been sufficient to warrant a gradual unwinding of our net purchases.”.
Regarding inflation Peter said “Signals showing the convergence of inflation towards our aim have been improving, and both the underlying strength in the euro area economy and the fact that such strength is increasingly affecting wage formation supports our confidence that inflation will reach a level of below, but close to, 2% over the medium term”.
Based on his speech at the Congress of Actuaries, Berlin we expect the probability of policy change is growing bigger either in next week’s meeting or in July.
Finally looking through the FX technical picture, the EURUSD surpass the 23.6% fib reaction and manage to close above 20MA for the first time since mid-April. Supports are at 1.1650 and 1.1590. The flip side, resistance seems to be at 1.1800/1.1835 and 1.1870 levels.
The Q2 range will remain between 1.1450-1.2000.
It is important to always keep in mind the risks involved in trading with leveraged instruments.
Have a question? Let us help!
A KTM Analyst is ready to assist you, click on the comment section below