Top Forex Brokers June Forex Outlook
Contents
US: decline in yields …………………………………………………………………………………………….3
US dollar index……………………………………………………………………………………………………3
Majors against USD……………………………………………………………………………………………..3
Brief economic overview ……………………………………………………………………………………..4
EUR/USD: all depends on the ECB…………………………………………………………………………4
GBP/USD is capped by $1.7000…………………………………………………………………………….5
USD/JPY: the pair may dip to 100.00…………………………………………………………………….6
AUD/USD got exhausted ……………………………………………………………………………………..6
Other currency pairs ……………………………………………………………………………………………8
Contacts …………………………………………………………………………………………………………..10
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US: decline in yields
The past month was successful enough for the greenback: US currency strengthened against most of its peers,with the exception of Canadian and Australian dollars and Japanese yen. Minutes of the last FOMC meeting showed that the regulator expects inflation to remain low. According to the Federal Reserve, it’s still necessary to keep stimulating economic activity and labor market. US monetary authorities continue tapering QE and point out that there’s a need to develop an “exit strategy” as excessive stimulus could create medium-term inflation risks. However, the economic data remain mixed and for now the policymakers don’t plan to lift up interest rates.
On the one hand, the number of employed in the US made the biggest increase in 4 years in April (NFP was 288K), while the unemployment rate declined to 6.3%. On the other hand, US economy slid by 1% in Q1 –this is the first quarterly decline since 2009. Wage growth remains low. Many economists think that the weak economic results of the first 3 months are due to bad weather and won’t constitute a serious impact on the Fed’s policy. The next meeting of the US central bank will take place on June 18. At the same time, with such economic background the expectations that American economic growth will be very resilient may not fulfill. The 10-year Treasury yields fell from the levels above 3% in early 2014 below 2.5%. This reflects risks for US economy and puts a break on the USD appreciation.
US dollar index (DXY) – change in May Majors against USD – change in May, %
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Brief economic overview
Economic fundamentals represent an important element of currency forecasting. Here’s an overview of some key indicators from the major economies. Note that the euro area still faces serious economic problems, though euro may continue getting support from the current account surplus. Japan has managed to achieve high growth, but inflation rose above the Bank of Japan’s target.
EUR/USD: all depends on the ECB
May was a very unlucky month for the euro bulls as they failed to take out $1.40. EUR/USD recoiled down from the top of the monthly Ichimoku Cloud and forming a maximum of around $1.3990 and slid to $1.3600. After the elections to the European Parliament the position of the ruling European parties deteriorated: although they ’ve managed t o retain majority, eurosceptics managed to gain significant support. The Europeans who had already been dissatisfied with the constant austerity measures got disappointed by the Q1 economic growth data: the overall GDP growth of the 18 European countries was only 0.2%. French economy stagnated and its lag from Germany, which added 0.8%, became bigger. Portugal withdrew from the bailout program provided by the EU and IMF, but has to deal now with the growing national debt and high unemployment.
The European Central Bank created the mood for the whole month as it started preparing the markets to additional stimulus in June. At a
press conference on May 8 Mario Draghi said that the central bank is ready to act in order to support the economic recovery and to prevent a fall in prices. Now inflation is at 0.5% and is well below the ECB’s target level of 2%. At the forum in Lisbon on May 25-27 Draghi reiterated this position. The ECB inflation forecasts will be released in early June. No one has doubts that there will be an Chart. Weekly EUR/USD easing in the ECB’s policy. Market participants are trying to guess what form this easing is going to take. At the moment, the main expectations for the ECB meeting (June 5) are:
1) 10-15 bps cut in the refi rate
2) Cut in the deposit rate to the negative area
3) End of SMP sterilization
4) Another round of LTRO (Long-term
refinancing operations).
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Earlier the ECB President has always said that inflation expectations are well anchored. Now the ECB has made it clear that it’s considering the prospect of the full-blown quantitative easing if the expectations became deflationary. At the same time, we think that although the ECB has moved towards QE, it’s still not ready to conduct such an operation as there are some political and legal obstacles.
GBP/USD is capped by $1.7000
British economy stands firm on a recovery path: GDP grew by 0.8% q/q and 3.1% y/y in Q1. The IMF forecasts Great Britain to become the fastest growing G10 economy in 2014. The Bank of England expects GDP to grow by 3.4% this year. The key economic sectors such as manufacturing, services and construction continue to recover. UK retail sales rose at a fastest pace since the year 2004 in April (+6.9% y/y). What’s more, the labor market situation keeps on improving: unemployment decreased from 6.9% to 6.8% in March. According to the BoE forecasts, unemployment will fall to 5.9% in 2 years. Given the ongoing economic rebound, many investors bet on an earlier rate increase, but the official forecast remains unchanged: the first half of the year 2015. The UK regulator underlines: premature rate hike threatens the pace of recovery. Inflation holds below the target 2% level (+1.8% in April), confirming that the BoE has no urgent need to raise rates. At the same time the B ank doesn’t make any aggressive attempts to talk the currency down with verbal interventions.
GBP/USD approached the $1.7000 figure on May 6,hitting a 5-year high. However, the buyers failed to overcome this psychological resistance: the pair dipped below the $1.6700 mark by the end of the month. The cable formed weekly candles with long shadows and small bodies in May. That means that the market participants are uncertain about the further prospects of the pair. Sterling has been trading in a bullish channel since September 2013, but slipped to the lower border of it after the May. Weekly MACD histogram gives out negative signals, the pair is still overbought.On the other hand, if after acting as expected in June the ECB hints at the possibility of further stimulus, euro will get hurt. Support for EUR/USD is at $1.3520/00, $1.3476 (2014 low) and $1.3415/00. Resistance is at $1.3740, $1.3820 and $1.3990.
Chart. Weekly GBP/USD
We see that the bearish pressure on the cable intensified, but there has been no clear reversal
confirmation yet. The next important support lies at $1.6650 (200-month MA), $1.6465 and $1.6300. The pair needs to close below $1.6730 to confirm a top at $1.7000. On the other hand, weekly close above $1.7000 could become a bullish signal. In this case we recommend watching the $1.7040/50 and$1.7320 (50% Fibo from the 2008 decline) levels.
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Japanese GDP growth reached a 2-year high of 5.9% y/y (1.5% q/q) in Q1. The economists explain such an impressive acceleration with a demand increase ahead of the consumption tax hike in April. The optimism may turn out to be premature, however: the economy is expected to lose 3.4% y/y in Q2. The tax hike will start influencing the public economic behavior. Aggressive policy easing launched by the Bank of Japan in April 2013 helped to speed the inflation up to the highest level since 1991 (+3.2% in April). However, the structural reforms of Shinzo Abe have not been completed yet, so it’s now too earl y to Anyway, the market is now optimistic about the Japan’s economic prospects, while the Bank of Japan assures: the economy doesn’t need additional economic easing. Together with the low global risk demand these factors resulted in yen strength. USD/JPY traded in a bearish channel in May, testing the 2014 support line to the downside. On May 21 the exchange rate fell to the lowest level since early February (100.80, the 55-week MA). However, the dip was quickly bought back: the pair recovered to the 102.00 mark. Meanwhile, the weekly MACD histogram remains bearish and holds below the signal line. The daily Ichimoku dead cross remains active.evaluate the results. The positive effect from the quantitative easing may prove to be short-lived.In a long term we still maintain our bullish view on USD/JPY, but there is a high chance to retest the 100 mark in the coming weeks (50% Fibo from the 2007- 2011 decline and weekly Ichimoku). The BOJ is very unlikely to let the pair fall below this level as the expensive yen will hurt the economy. Resistance lies at 103.00, 104.00 and 105.40.
Chart. Weekly USD/JPY
AUD/USD got exhausted
The advance of Australian dollar AUD/USD met resistance created Ichimoku cloud at $0.9400
consolidating between this level andstalled in May.by the weeklyand continued$0.9200.
The fundamental factors this month were mostly against Australian currency. According to the minutes of the Reserve Bank of Australia May meeting, the regulator believes that despite the improvement in labor market data, the country has too much spare capacity. In addition, the central bank said that in the coming quarters, growth is likely to be below the trend level. On June 3 the RBA has left the benchmark interest rate unchanged at 2.50%. The regulator repeated that it sees a likely period of interest-rate stability and that the AUD remains high by historical standards.
Chart. Weekly AUD/USD
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Note that corporate investments in Australia are falling for the second consecutive quarter as growth in the mining sector slowed down. Although the rest of the industry shows signs of life, and new home sales increased, the overall economic situation remains bleak. In addition, in May Standard & Poor’s announced that it may reduce Australian top credit rating, if the country doesn’ t put its budget in order. From a technical point of view, Aussie still can return to recovery as long as it’s trading above its 200 -day MA and the bottom of the daily Ichimoku Cloud in the $0.9175 area. If AUD/USD manages to stay above these levels, it will have chance to break above the May highs confirming the bullish flag and targeting $0.9600. Strengthening of the US dollar, on the contrary, will make the Australian currency test support at $0.9117, $0.9065 and possibly at $0.8970. Later S&P explained that the probability of such outcome is low, but the sheer fact of such assumption has a bad effect on Aussie. Good data on business activity in China – Australia’s main trading partner – failed to give AUD driver for growth.
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Other currency pairs
EUR/GBP
EUR/GBP weakened to 0.8080 in May – this is the lowest level since December 2012, 100-month MA. The buyers returned in play at the end of the month, pushing the pair above the April-May bearish channel resistance. Despite that, the overall picture is seen as negative. Strong resistance for the cross lies at 0.8150 and 0.8200.
USD/CHF
After uneven jumps between 0.8700 and 0.8950 USD/CHF has managed to break higher and reach the 200-day MA at 0.8985. As the market’s overbought, the bulls may take time to overcome this obstacle. On the weekly chart, the pair has potential for growth. Support is at 0.8920, 0.8850 and 0.8800. The Swiss National Bank keeps pegging franc versus euro due to the low inflation – such policy is unlikely to change.
USD/CAD
During the last 2 months the pair has been trading within a falling wedge. Important support is located at 1.0850 and 1.0745 (200-day moving average). Resistance is at 1.0940 and 1.1050. Canadian dollar strengthened against its US counterpart after annual inflation rate in Canada rose to the target value of 2% for the first time in 2 years. This may constitute the reason for the central bank to t emper rhetoric about the “risk of low inflation” in its next statement – a positive factor for CAD.
NZD/USD
New Zealand’s dollar rose in May to $0.8779, the highest level since July 2011. After that the currency drifted down to $0.8450. The pair has breached the broadening formation. The forecast for NZD/USD is bearish. There are indications that the Reserve bank of New Zealand will make a pause in the monetary tightening cycle. In addition, the central bank is quite likely to lower its forecast for inflation and interest rates. Kiwi was affected by lower prices for dairy products and worsening business sentiment. The next meeting of the RBNZ will take place on June 12. Support is at $0.8400, $0.8350 and $0.8275.
EUR/JPY
EUR/JPY depreciated in the first decade on May, breaking below the bearish triangle support (139.95). Investors await the ECB policy easing, while the Bank of Japan convinced the markets that there will be no additional stimulus in the near term. Divergence of the central banks’ “intentions” is the main reason of the EUR/JPY decline. However, the bearish pressure eased in the second half of May: the cross found support at the 200-day MA and is now consolidating in 138.00/139.35 range. Our forecast will remain negative as long as the pair holds below 139.35.
AUD/JPY
AUD/JPY spent the month in the 96.10/93.05 range, moving in a descending broadening formation. As a result, the pair formed a monthly “long-legged doji” candle. The Aussie undertakes some attempts to recover, but the market remains under a bearish dominance. The pair needs to overcome the 95.00 resistance to return the bullish view back in play.
GBP/JPY
GBP/JPY, as the other JPY crosses, spent the month under pressure. The pair broke the ascending triangle to the downside, but slowed the decline around 169.50. Technical picture speaks in favor of a deeper decline. Break below the 169.50 support could open the way to 164.30/162.60. Strong resistance lies at 170.00 and 173.40.
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XAU/USD
XAU/USD has fallen to the area of $1,250. Gold price fell to the lowest level in 15 weeks on strong US economicdata and signs of declining demand for the metal in China. The price breached the symmetrical triangle and fell below the 61.8% Fibo from the recovery in 2013-2014. The bulls are also under pressure of the daily and weekly Ichimoku Cloud. Gold is now vulnerable for decline to levels near $1,230. The main resistance is in the $1,300 zone.
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