Weekly Outlook: Jun 18 – 22; ECB Policy Meeting the Key Event of the Week

Last week the pound was the most volatile currency following the UK leadership change and the BoE decision to remain until the next policy meeting on 4th of August to apply stimulus measures, in order to gauge better the economy. The release of some strong data from U.S bolstered the currency. The optimistic figures include the above expectations retail sales for June (0.6% vs 0.1% expected), the strongest increase in over a year for June’s PPI and a solid 0.6% increase of industrial production versus a contraction of 0.4% the month before.

However, this week the political events will dominate the market. The Nice attack and the failed coup in Turkey culminated the political instability and the safety risk in the world. In economic news, the main focus of the week will be the ECB interest rate decision and Mario Draghi’s press conference after.

On Monday morning, the German Buba monthly report will be released and is the only scheduled economic update from the Euro Area. The U.S. National Association of Home Builders will publish the housing market index for July, which represents the home sales and the expected home buildings in the near future. In Australia, the CB leading indicator for May is coming out while overnight, the Reserve Bank of Australia will release the last meeting minutes.

On Tuesday, from UK we have the inflation report being the epicenter while in Euro area the ZEW survey is the spotlight of the day. The headline of the UK inflation report, the CPI, is expected to slightly pick up at 0.4% in June from 0.3% the previous two months, compared to the previous year. The monthly consumer growth is predicted to remain stable at 0.2%.

The German ZEW survey is expected to show that German economic sentiment fell to 9.0 in July, below the half of the last figure of 19.2. The German current conditions are also forecasted to slow down to 52.0 versus 54.5 before. No forecasts are available for Eurozone’s economic sentiment. The U.S. building permits and the housing starts in June are predicted to rose slightly compared to May. New Zealand’s Fonterra dairy trade auction will take place later in the afternoon.

On Wednesday morning, Eurozone’s current account balance will be released. At 8:30 GMT time, the traders’ attention will shift on UK employment report. The unemployed people are expected to have risen by 4.0k in June versus a decrease of 0.4k in May. The wages are predicted to have grown 2.4%, the highest since October 2015, slightly steeper than April’s growth of 2.3% while the headline of the report, the unemployment rate for the three months to May is expected to have remained unchanged at the more than 10-year record low level of 5%.

In Euro area, the flash consumer confidence for July is forecasted to have slumped even lower in the negative territory at -8.0 versus -7.3 before. During the night, the National Australia Bank will release the business confidence for the second quarter of the year.

On Thursday, the UK retail sales will be released along with the public sector net borrowing for June and both of them will be closely eyed by investors. The highlight of the day is the policy meeting of the European Central Bank. Brexit affected severely the world economic growth including Euro area as a whole. Thus the central bank may think of adding more stimulus to the economy. It’s worth to mention that ECB has already shifted to negative rate policy, its deposit rate is -0.5% and its interest rate 0%. The review of the main rates will be followed by ECB President Draghi’s press conference who is expected to comment on the Brexit impact to the 19-nation economy and the tools the bank will use to prevent further slowdown.

In U.S., the week jobless claims will be released as usual and later on the CB leading indicator for June, that shows the overall activity of the domestic economy, is coming out. In addition, few indicators for the housing sector will be published. The existing home sales are expected to have decreased 0.7% at 5.48M versus an increase of 1.8% to 5.53M the month before.

Friday is a Markit day. The flash Markit PMI for Euro area is expected to show a small increase to the growth in both the manufacturing and services sectors in June compared to May. A slowdown is also expected to all of the three sectors in UK that are surveyed by PMI, construction, services and manufacturing. In Canada, the inflation rate for June and the retails sales for May will be released.

USD/TRY - Technical Outlook
The Turkish Lira plunged more than 5% against the U.S. dollar after a group within Turkey’s military apparently attempted to overthrow the government on late Friday. The USD/TRY pair rose from 2.8790 to 3.0500 following the turmoil in Turkey. However, the lira strengthened early Monday, paring almost half the loss after Turkish authorities thwarted a coup attempt over the weekend.

Technically, the pair continues to lack directional strength and consolidating near its recent highs, around 3.0700. The consolidation in this pair over the last couple of months, which previously looked like a triangle – a continuation pattern – has now become a symmetrical triangle. This is typically a bullish pattern, regardless of whether it appears in an uptrend or a downtrend. The ability of the pair to close below the psychological level at 3.0000 brings a negative bias upon the pair and for that reason I expect to see further downside in the coming week or so. Should this come through, support levels to watch out for come at 2.9300 and then at 2.8750. The 4-hour chart shows technical indicators within positive territory, but lacking clear directional strength. At this point, the pair needs to advance above 3.0700 to present a more positive outlook.

EUR/USD - Technical Outlook
The single currency continues to be weakened by the potential fallout after the British exit from the European Union. Although the euro experienced losses on Friday against the dollar the euro failed to break above the critical resistance level at 1.1170 price level and plummeted near the psychological 1.1000. Ahead of the ECB meeting and Eurozone PMIs on Thursday the range that holds for almost a month, probably will break in the coming week.

On the daily chart, the pair is still moving in a trading range between the lower band at 1.1000 and the upper band at 1.1170. Technically, the move of the currency would be aggressive if we experience a break in either direction. A successful break above the upper band will open the way towards the 1.1240 barrier which coincides with the 100-SMA. If there is a penetration of the lower band, the price will drop down to the 1.0970 level and then to 1.0910. Technical indicators are still following a negative territory whilst the RSI oscillator is close to its mid-level suggesting a further consolidation in the next few days.