Analytic reviews

Will Euro go up or down?

Good data regarding retail sales (growth of 0,3% against 0,2%) and decrease of applications for unemployment benefits (315000 against 333000) had a positive impact on USD, as it rapidly increased against EUR. Another massive concern which had a negative impact on EUR was the speech by Mario Draghi as he announced that EUR is overvalued and that ECB is preparing  new additional monetary policy stimulus measures. Investors expected to hear it from Mario Draghi last Thursday, but he did not do that. But taking into the consideration weak Euro Zone statistics and almost vertical EUR growth ECB president made a verbal impact on Euro currency.

Taking into the consideration on-going situation we expect EURUSD to continue further decrease if  University of Michigan Consumer Sentiment Index for March is at least not worse than the prediction (81,9 against 81,2)

Semen Kamensky​

What to expect from currency market

Looking on currency market we can suggest that traders are waiting for the new portion of economic statistics from the US in order to understand whether US economy is slowing after the cold Winter or not. After any good news about US economy is published there is a rapid USD increase due to massive USD oversold. We highly emphasize retail statistics which is to be published tomorrow. Growth of 0,2% for the last month is expected compared to -0,4% in the previous one.

If the data is at least not worse than the prediction it will be a massive impulse for USD growth and meanwhile market will continue to consolidate with minor USD increase.

Semen Kamensky ​

USD will get support on financial markets

Upcoming improvements of US economy statistics after cold Winter start to support USD. It can be proved by the latest statistics and news – good employment statistics, expected inflation of 3,09% in 2015 (according to New-York Federal Reserve Bank), increase of employment trend index to 116,39 in February by Conference Board which equals to 4,4%.

Discontent of Bank of England and overall opinion of ECB that Pound and Euro are too expensive will give a support to USD due to the fact that both Bank of England and European Central Bank are very unlikely to go for monetary policy tightening in the nearest future.

Local overbought of Euro, Pound, Yen and other currencies against USD will be implemented in their decrease against USD in the short-term

We expect Euro and Pound decrease until 1,3700 and 1,6580.

Semen Kamensky​

USD still has good perspectives for a growth

Most likely ECB will have to take quite difficult decision today. On one hand, Euro Zone economy is still struggling from high unemployment rate which is yet to show any reduction signs, PMI slowdown and many other problems including Ukrainian crisis and on the other hand the low base effect has worked out and it can be proved by manufacturing activity and retail sales, but these are insignificant fact as already today on the ECB meeting a decision regarding incentives expansion can be taken. Long period of low inflation in Euro Zone can have a massive negative impact.

By now situation is more or less stable, but at the same time there are still problems in two Euro Zone countries. For example there are no positive signs in France and this is the second largest economy in Europe.

That is why there is a high probability that ECB will go for incentives expansion.

Semen Kamensky ​

Euro will continue to decrease

EURUSD hit the local maximum recently and is quite “expensive” not to disturb Euro Zone economic recovery. Announcement by French Government saying that high Euro does no good for French economy just prove it.

In case American ADP non-farm data will be better than expected today it will be possible to expect rapid decrease of EUR against USD, what is more, USD will get another stimulus for growth.

At the same time if ECB president Mario Draghi will mention something about new Euro Zone support incentives it will have a massive negative impact on Euro currency which might drop down to 1,3645.

Semen Kamensky​

It makes sense to sell EUR on the up-trend

It looks like EUR will remain under pressure despite the fact that Mario Draghi is expected not to continue further monetary policy mitigation. We believe that on the next meeting which will take place this Thursday ECB president can announce his decision. We still remember how he unexpectedly decreased refinance rate from 0,50% to 0,25% last November. The problem is that EuroZone is still in the stagnation period and that insignificant GDP growth in several countries including Germany, France and Spain is just a rebound from a massive drop in the previous years. High unemployment rate, weak PMI, low inflation and many other economic problems might make ECB to go for new monetary policy incentives reduction.

French government already announced that they are concerned about high EUR rate and head of IMF Lagarde said that long period of low inflation is capable to have a massive impact on Euro Zone economy.

That is why we believe that EUR can be under pressure in a short-term.

Semen Kamensky​

Geopolitical issues boost USD

Unexpected decision by Russia to support their compatriots on Ukraine led to the increase of tension in Europe and world in general. Due to this fact investors are less interested in risky deals. Russian rubble hit new minimums against EUR and USD and stock market simply collapsed. On the currency market US dollar got light support against EUR. What is more, JPY, CHF and gold increased against USD. Even NZD got under pressure despite the fact that refinance rate is expected to be increased.

Relatively good German, French and EuroZone PMI data support Euro currency, but overall economic situation in Europe remains unstable. High unemployment rate and quite small inflation might make ECB accept new measures to support economy. To conclude with, we do not forget that head of the Federal Reserve Janet Yellen announced last week that US would continue to reduce incentives.

Semen Kamensky​

One of nine members of Bank of Japan Takehiro Sato said on Thursday that foreign investors are quite disappointed with the rate of reforms announced by Japan prime minister Shinzō Abe. This is a unique case of critics of Japanese government from one of the central bank governors. Sato (ex-economist of Morgan Stanley) is skeptical about official goal by the bank of Japan to keep inflation under 2% during the next two years which he refused to vote for. What is more, Sato is against the rush regarding further monetary policy reduction saying that such kind of actions will cool down Japan inflation expectations because it will be possible to predict that Bank of Japan lost faith in own strategy.

Andrey Batensky​

US dollar got a massive impulse

US Real Estate statistics published recently was much better than expected (468000 against predicted result of 400000), what is more, the result is much better than the previous one of 427000. Monthly increase equals to 9,6% against predicted 1,0%. This data inspired investors and looks like weak Winter statistics was a misunderstanding due to cold Winter.

Traders no longer hesitate that Federal Reserve will continue to reduce incentives and general economic improvement most likely will make Federal Reserve increase refinance rate earlier than expected.

EURUSD is being under pressure at the moment not only due to good US Real Estate statistics but also from the expectations that ECB might go for new economic stimulus. Latest weak statistics from France, Spain, Italy and also quite not impressing from Germany might make ECB to go for it and that might have a negative effect on EUR in the short-term.

Semen Kamensky​

At the beginning It was Swiss Franck and now Japanese Yen are considered to be a safe-currency even though USDJPY dropped below 102,00 this week and EURJPY is traded at 13-day minimum of 139,10.​

Recommendation: we buy the pair in case of a breakthrough and clear fixation above strong intermediate resistance level of 101,95 with small stakes and we increase our positions in case the pair goes above 102,15 with the short-term aim of 102,60 and a long-term aim of 103,45.

Andrey Batensky ​