Forex Market: Outlook for EUR/USD during the upcoming week

The euro snapped six weeks of advances against the US dollar, the longest winning stretch in more than six years, as the Federal Reserve signaled it is moving toward raising borrowing costs, while further trimming monetary stimulus.

EUR/USD touched a session high at 1.3811 at 13:45 GMT, after which the pair settled at 1.3794 on Friday, adding 0.12% for the day. The US dollar added 0.9% this week, strengthening from a more than two-year low of $1.3966 it registered on March 13th. The pair snapped six 5-day periods of advances, the longest winning run since July 2007. Support was likely to be received at March 20th low, 1.3750, while resistance was to be encountered at March 20th high, 1.3845.

The Federal Open Market Committee revised its forecasts on March 19, showing more policy makers predicted the main interest rate, now close to zero, would increase at least to 1% by the end of next year and 2.25% by the end of 2016, higher than previously forecast.

The stance of the central bank was seen as slightly more hawkish than investors expected, boosting demand for the US dollar.

The Committee also dropped the unemployment rate threshold for considering when to raise interest rates, making a transition to a wider set of data.

At a press conference after her first meeting as Federal Reserve Chair, Janet Yellen said there might be a “considerable time” between the end of the stimulus program and the first increase in borrowing costs, meaning “around six months or that type of thing”.

“Growing confidence that the Fed will be tightening in 2015 should drive the dollar higher over coming quarters,” said Chris Turner, head of currency strategy at ING Groep NV in London, cited by Bloomberg. “The combination of loosening forward guidance in the Federal Open Market Committee statement and in particular the concentration of views that fed funds would be at 1 percent by the end of 2015 were the main drivers of the dollar move.”

Meanwhile, the 18-nation common currency was supported after the European Central Bank reported an unexpected increase in the currency bloc’s current account on Friday.

The ECB reported that the euro area current account increased to a seasonally adjusted 25.3 billion euro in January, up from 21.0 billion in the previous month and confounding analysts’ expectations for a decline to 18.4 billion euro.

However, euro’s demand remained under pressure after ECB Executive Board member Sabine Lautenschlaeger commented on Thursday that rates will remain at current low levels for a prolonged period of time or will even be reduced further.

Earlier in the week, the 18-nation common currency was pressured after economic sentiment data for Germany and for the euro zone as a whole came in well-below expectations.

Economic sentiment in the largest euro area economy, Germany, deteriorated sharply, reaching a 7-month low in March, data by the ZEW Centre for Economic Research showed on March 18.

The ZEW (Zentrum für Europäische Wirtschaftsforschung), reported that its index of German economic sentiment slid by 9.1 basis points to reach 46.4 this month, the weakest level since August, from a reading of 55.7 in February. At the same time, analysts had expected a smaller drop by 2.7 basis points to 53.0 this month.

In addition, the euro area economic sentiment also registered a decline, coming in at 61.5 in March, down from 68.5 in the previous month and as analysts projected the index will decline to 67.3 this month.

During the week ahead investors’ attention will be focused on the final value of the US Gross Domestic Product, scheduled to be released on Thursday, while another closely watched report, encompassing US durable goods orders, will be published on Wednesday.

EUR/USD may be influenced by a number of reports/events, which are expected during the upcoming week, as follows:

On Monday (March 24th) Markit Economics is to announce the preliminary reading of its manufacturing PMI for the United States during March. Meanwhile, Markit Economics will also report the preliminary reading of its services and manufacturing PMI for Germany, France and the euro area.

On Tuesday (March 25th) the Conference Board research group will announce the results from its survey on consumer confidence in March, which encompasses over 5 000 households in the United States.

S&P/Case-Shiller will report on the performance of their home price index in January, which represents data coming from 20 large cities in the United States.

A separate report will present the number of new homes sold in the country during February, a key indicator for current housing market activity.

On Wednesday (March 26th), at 12:30 GMT the United States will publish a report on durable goods orders for February, an indicator, representing a key part of nation’s overall factory orders.

On Thursday (March 27th) the United States is expected to report on its final annualized Gross Domestic Product during the fourth quarter of 2013, a key indicator for country’s overall economic activity.

This report will be followed by weekly data regarding the number of initial jobless claims during the week ended on March 22nd, an indicator for lay-offs in the United States.

At 14:00 GMT the National Association of Realtor’s (NAR) will release data regarding pending home sales in February, an indicator for future housing sector activity.

Meanwhile, the euro zone will report on its M3 money supply for the three months through February. The monetary base is expected to have expanded to 1.3% in February from 1.2% in the previous month.

On Friday (March 28th) the United States will release data, encompassing personal income and personal spending during February.

At 13:55 GMT Thomson Reuters in cooperation with the University of Michigan will announce the final reading of their gauge of consumer confidence in March.

Meanwhile, Germany will release its preliminary consumer price index for March, which is expected to have fallen to a 1.1% gain from a previously estimated 1.2% advance.