Source: Growth Aces Forex Trading Strategies
EUR/USD
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[li]In our opinion the long-term bearish EUR/USD trend is over. Further strengthening of the USD would limit rise in U.S. inflation rate and may be a reason for delaying rate hikes in the USA. The Fed needs also further strengthening in economic activity and improvement in the labor market and stronger USD could be a hurdle for the economic revival. Moreover, we stressed many times that this-year FOMC composition is much more dovish than the previous one, so the pace of monetary tightening may be slow. On the other hand, ECB’s QE programme has been priced in for long time and the potential for further fall in European bonds yields is limited.
[/li][li]Euro zone PMIs (Tuesday, 9:00 GMT) will be important macroeconomic releases this week that could support our long EUR/USD position. They should post the fourth consecutive increase, confirming that the economic recovery is regaining traction. Lower oil prices and weak EUR will continue to stimulate the real economy, especially the manufacturing sector. We expect also stronger increase in German Ifo index (Wednesday, 9:00 GMT), after it rose only 0.1 point in the previous month.
[/li][li]U.S. CPI data will be released on Tuesday (12:30 GMT). Our forecast is in line with the market consensus and amounts to 0.2% mom, -0.1% yoy for CPI and 0.1% mom, 1.6% yoy for core CPI. We should notice that energy prices increased in February following seven straight months of declines.
[/li][li]In our opinion the EUR/USD is likely to rise to 1.1000 soon. Stronger resistance levels are seen above 1.0900 (1.0920 – high on March 19, at 1.0940 – 21-dma).
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GBP
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[li]GBP traders will be focused on UK CPI reading, scheduled for Tuesday 9:30 GMT. Our forecast is in line with the market consensus: 0.1% yoy for CPI and 1.3% yoy for core CPI. Fuel prices bottomed out in early February and that will a small negative impact on headline inflation. Moreover the EUR/GBP fall may result in lower import prices.
[/li][li]The market will focus also on Thursday’s UK retail sales data.
[/li][li]We stay sideways on the GBP/USD. We expect weaker USD, but on other hand political uncertainty surrounding the upcoming UK general elections is likely to weigh on the GBP. We keep our EUR/GBP long position in the run up to the UK elections.
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JPY
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[li]The most important data for JPY traders are Japan’s CPI readings (on Friday). A reading of core CPI below 2% would imply that the economy has returned into deflation for the first time since the initiation of QQE (because of the reading needs to be corrected for the effect of sales tax hike last year) . The market may react strongly to lower core CPI reading. However, we think that the possibility of additional stimulus from the Bank of Japan is very low now.
[/li][li]We stay bullish on the EUR/JPY, but do not expect further rises in the USD/JPY because of dovish tilt in the expectations for rates hikes in the USA.
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