Forex Markets

US / EU ECONOMY MARKET TRENDS

EUROPEAN FOREX PROFESSIONAL WEEKLY
Analysis and Signals
February 25, 2015

Fundamentals

The recent US macro data was mixed. Although PPI has shown sudden growth for 1.4% (exp. 0.8%) and indicated surging in inflation, other statistics was not so optimistic. CPI was anemic at 0.2%, new home sales has shown weak numbers of 309K (exp. 354K) and the most surprising was Consumer Confidence that fell below 50.0 to 46. In general the number below 50 indicates recession in economy and depressed consumer’s expectations. Fed has used this temporary reduction in macro numbers to control investor’s hasty for rate’s hiking appetite - it grew significantly since Bernanke’s testimony on the last week and discount rate hiking. During the speech in Congress yesterday Fed’s Chairman has confirmed that rate will still low for a considerable period of time, and it is too early to talk about tighten. The Chairman called demand moderate, noted slack in the labor market, and seemed in little hurry to raise the fed funds rate. There were a number of statements on jobs, which need to improve for the Fed to have political cover to tighten. The Fed is moving slowly. It will unwind its emergency liquidity and monitor the impact and economy before lifting the fed funds rate. The Chairman saw rays of light in commercial real estate, but noted that it is the biggest credit risk in the economy.

I suppose that investor’s expectation about Fed rate will be very sensitive to macro data. Fed has made the first step already and everybody understand that the Fed rate hiking will depend from the quality and trend stability of macro data basically. So, Existing home sales, Chicago PMI, even GDP second calculation and NFP of cause on the next week, can lead to the growth in volatility on the markets.

EU macro data was not optimistic at all. Germany’s business climate index IFO has declined, French consumer spending dropped for -2.7% M/M. Besides, the lack of resolve in Greece and the social unrest will make it difficult for traders get bullish on EUR. Unions shut down transportation, medical and educational facilities in the country’s second 24 hour strike. Greece has to repay about EUR 16 bln in April and May. S&P kept Greece’s rating a BBB+/A-2, but maintained Greece on credit watch for a downgrade. S&P’s analyst said a further downgrade of one or two notches is possible within a month. More interesting, there is political instability developing in Turkey with the military and government appearing to be at odds over the country’s direction. Events in Europe could cause a safe haven bid.

Résumé: US and EU situations are quite different. The first one (I mean US) has absolutely economical fundament. There is pretty much volatility in macro data, but Fed is already made the first step. The developing in situation will depend only from stability and predictability of economy’s data. That’s why investors will track it even more than in previous periods. EU has the problems not only in economy but in politics also. This makes investors nervous even more, and blurs much perspectives of solving the problems. It will press on EUR in long term. For now I still think that the probability for bearish development of EUR/USD pair is higher.

Technical

Monthly (EURO FX all sessions CME futures)

Market has reached 1.3480 monthly support, no oversold condition still. Although we have bullish trend yet (February bar has not closed yet), but it will be a miracle if February bar will close above 1.3972, so, we can say that monthly trend turns bearish. The nearest monthly target is COP=1.2881 (there will be an oversold by the way), OP=1.1482.

Weekly (EURO FX all sessions CME futures)

Weekly chart does not give us any special signal. Market has reached important weekly and monthly 1.34-3480 support area. We have strong downtrend, no oversold conditions. Worth noting that during last three weeks market tried to go higher, but these attempts were unsuccessful. This can be a sign of possible down move continuation, but we should not pay too much attention to this. Anyway first signs of possible future moves we will see on shorter charts.

The nearest target for weekly move is 1.34. Extended target XOP=1.3077

Daily (EURO FX all sessions CME futures)

On daily chart just two important things for now – trend turns bullish, at the same time prices go lower, but market does not have enough sell power to reestablish bearish trend and all this stuff is just above weekly/monthly 0.618 support. At the same time, market has failed a possibility to reach 1.38 (That I’ve expected) and couldn’t break 1.3656-1.3665 confluence resistance area. So, I think that some market behavior around this level should help us to understand possible further move at near days. If market shows us strong down impulse below 1.34 then this event will touch stops below 1.34 and bearish trend will be reestablished. In this case move to XOP=1.3125 will be possible. If it shows some signs of wash and rinse of 1.34-1.3480 support and will come back above this level – then we should expect possible retracement higher.

In general we have two opposite signs - combination of a convergence with MACD just above important support is more bullish than bearish sign. From the other side market could not break through 1.3650-1.3670 confluence resistance area and has shown wash & rinse. That’s why I offer you to wait a bit. Very possible that market will clear up 1.34-1.35 support (collect all stops and return back) – in this case we will receive either down move or signs of possible retracement higher. This scenario is even more possible, because we have daily OP at 1.3398 level – few pips below support level. Market can reach it but not the stops under 1.3400.

Concerning levels… If market will start the retracement higher – the first important target is Confluence resistance area at 1.3650-1.3670 area, and then – 1.3800 level, where sweet stops are placed.

Daily EURUSD

Trade possibilities (1):

Monthly Now we can say that monthly bearish trend will be confirmed. From that point of view the nearest target is COP=1.2880.

Weekly We have down trend, no oversold conditions. The nearest target is 1.3077 level.

Daily
For now it looks like that market is making decision. The down move becomes slower. There are signs either possible down thrust or retracement higher, so for me to stay aside for a while is a better choice. May be situation will become clearer in 2-3 days.

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(1) “Trade possibilities” are not detailed trade signals with specific entries and exits. They are expectations about possible moves of the market during the week based on market analysis.