Forecast for the week of June 16-20

June 19, 2014

Forecast for the week of June 16-20

Next week the most important event for the financial markets will be the US Federal Reserve's decision regarding monetary policy. It is expected that the program of purchasing QE3 assets will again be reduced by 10 billion dollars with the improvement of a number of important macroeconomic indicators in the United States in Q2 2014. At the beginning of the week we will receive May's information regarding manufacturing output and consumer inflation in the United States. The first of these indicators may grow by 0.4% (m/m) in the reporting period, reflecting a strengthening of the real sector of the US economy. As in April, the annual growth rate of consumer inflation in the United States will probably remain at 2.0%. If it exceeds this level, the US Federal Reserve will be forced in the mid-term to increase the key interest rate. Considering the gradual tightening of monetary and credit policy in the US and the loosening of monetary policy in the Eurozone, we cannot rule out the possibility that the EUR/USD pair will break through the 1.3500 mark.

 

The Bank of Japan's monthly economic report, which analyzes the activity and movement of the Japanese economy, will be released on Monday. In view of the recent tax hike on sales in the country, the report may indicate a decrease in consumer spending by Japanese households in Q2 2014, thus applying pressure to the Japanese currency. The USD/JPY pair's June high of 102.75 will likely be tested this week.

 

From Tuesday to Thursday a wide range of macroeconomic statistics about Great Britain (consumer inflation, minutes from the meeting of the Bank of England, retail sales) will be published. Last week the pound's growth was driven by Governor of the Bank of England Mark Carney's comments regarding the possibility of raising interest rates in the country sooner than market participants had expected. After the pound's small correction to its support level of 1.6920, last week's high in the neighborhood of 1.7000 will likely be tested again.

 

On Thursday the Swiss National Bank will release its decision regarding the key interest rate. The rate is expected to remain unchanged in the range of 0.00-0.25%. We note that, given the euro's decline in the forex market, the Swiss central bank's maintenance of the level 1.2000 for the EUR/CHF pair may require the national regulator to intervene in the franc's weakening exchange rate. According to our estimates, the USD/CHF pair may exceed the key resistance level of 0.9035 by the end of the week.

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