EUR/USD Weekly Forecast – 25 January

Friday, Jan 22 2016

Events that marked the week:

From Eurozone, on Tuesday, ZEW Economic Sentiment figures were released. The ZEW Indicator of Economic Sentiment for Germany has declined in January 2016. The index has decreased by 5.9 points compared to the previous month, now standing at 10.2 points (long-term average: 24.7 points). Analysts were expecting even larger decline. The indicator has declined for the first time following two consecutive increases.

Financial market experts' sentiment concerning the economic development of the Eurozone has weakened. ZEW’s Indicator of Economic Sentiment for the Eurozone has decreased by 11.2 points to a reading of 22.7 points. Gaining 2.1 points in January 2016, the indicator for the current situation in the euro area has climbed to a value of minus 7.5 points.

Focus of Thursday's session was on ECB rate decision and the following press conference. The Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.05%, 0.30% and -0.30% respectively. European Central bank boss Mario Draghi warned that downside risks were increasing again and more stimulus might be necessary, causing a sharp move in equity and currency markets."It will therefore be necessary to review and possibly reconsider our monetary policy stance at our next meeting in March," Draghi told at the following news conference, making it clear that things had changed since December as oil prices fell sharply.

Friday was marked by French and German Manufacturing and Services PMI data. Flash Germany Manufacturing PMI fell 52.1 from 53.2 in December what is a 3-month low. Flash Germany Services Activity Index also declined to 55.4 from 56.0 in December, what is a 3-month low. Germany’s private sector economy was largely unaffected by the recent stock market turmoil and intensifying uncertainty stemming from the so-called migrant crisis at the beginning of the year, according to latest survey results. Although the headline index (which measures the combined output of manufacturing and service sector firms) fell to a threemonth low, the latest reading was higher than the 2015 average and indicative of robust, although unspectacular, growth of the German economy.

Flash France Manufacturing PMI slipped to 50.0 from51.4 in December what is a 5-month low. On the other hand, Flash France Services Activity Index climbed to 50.6 from 49.8 in December, a 2-month high. January’s French PMI figures signalled an uneventful start to the year, with the private sector economy eking out marginal activity growth, shrugging off the recent volatility in financial markets. Competitive pressures remain strong, with firms cutting their selling prices at the sharpest rate in seven months in a bid to shore up demand, suggesting that inflation is set to remain very weak in the near future.

This week markets will be looking at:

German Ifo Business Climate (Monday 10:00)

German Retail Sales (Thursday 8:00)

German Prelim CPI (Thursday)

Spanish Unemployment Rate (Thursday 9:00)

Spanish Flash CPI/Spanish Flash GDP (Friday 9:00)

M3 Money Supply (Friday 10:00)

CPI Flash Estimate (Friday 11:00)

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