Today, the economic calendar is almost empty, with no major economic indicators due to be released. The only event that could attract market attention is a speech by ECB President Mario Draghi, who will appear before the European Parliament. This will be Draghi’s last appearance ahead of the ECB’s June meeting and as such, we expect investors to scan his comments for any hints as to whether the Bank will shift to a more optimistic bias as early as at that gathering. Last week, he attempted to manage such expectations by indicating that there is no reason to deviate from the forward guidance in the Bank’s official statements.
We don’t expect Draghi to materially change his message today. We think he will likely reiterate that although Eurozone’s economy is improving – evident by a declining unemployment rate and solid GDP growth – core inflation remains relatively subdued. In addition, we doubt that the ECB chief will risk triggering further surge in the euro by appearing too upbeat too early. As such, we think that the risks surrounding the euro’s reaction from his comments may be tilted somewhat to the downside. If he maintains a cautious tone overall, investors looking for hawkish clues could be left disappointed. Finally, with markets staying closed in the US and the UK today, liquidity may be thinner-than-usual, which could amplify any potential market reaction.
EUR/USD traded lower on Friday after it hit resistance near the 1.1230 (R1) hurdle, before the decline was halted by the 1.1160 (S1) support level. Even though the price structure on the 4-hour chart still suggests a short-term uptrend, in case Draghi disappoints EUR bulls today, we could see the latest pullback continue. If sellers manage to overcome the 1.1160 (S1) zone, we could see further downside extensions towards the next support at 1.1100 (S2).
EUR/JPY also declined on Friday from near the 125.30 (R2) territory, to break below the 124.50 (R1) support (now turned into resistance) barrier. A cautious tone by the ECB President today could provide the bears with an excuse to push the battle lower, perhaps for an initial test of the 124.00 (S1) area. A clear break below that zone could set the stage for the 123.00 (S2) support.
Today’s highlights:
The only noteworthy indicator we get today is Eurozone’s M3 money supply for April, though this is usually not a major market mover.
Besides ECB President Mario Draghi, we have one more ECB speaker on the schedule: Executive Board member Peter Praet.
As for the rest of the week:
On Tuesday, we get Germany’s preliminary CPI for May, as well as US personal income and spending data for April. Staying in the US, we also get the core PCE price index for April. On Wednesday, Eurozone’s preliminary CPI figures for May will capture market attention. On Thursday, from the US, we get the ADP employment report as well as the ISM manufacturing PMI, both for May. From the UK, we get the manufacturing PMI for the same month. Finally on Friday, all eyes will be on the US employment report for May. The forecast is for nonfarm payrolls to have risen by 183k, for the unemployment rate to have ticked up and for average hourly earnings to have slowed somewhat in monthly terms, though that would leave the yearly rate unchanged. Despite some potential softness in the unemployment rate and earnings, we think that overall, this is likely to be seen as a decent report by FOMC officials, and it could seal the deal for a June rate hike.
EUR/USD
Support: 1.1160 (S1), 1.1100 (S2), 1.1070 (S3)
Resistance: 1.1230 (R1), 1.1270 (R2), 1.1300 (R3)
EUR/JPY
Support: 124.00 (S1), 123.00 (S2), 122.00 (S3)
Resistance: 124.50 (R1), 125.30 (R2), 125.80 (R3)
