EUR/USD Weekly Forecast – 12 December

Saturday, Dec 10 2016

Events that marked the week:

Main market mover on Monday were the results of Italian Constitutional Reform referendum. Italians have rejected Prime Minister Matteo Renzi's make-or-break constitutional reform, and the 41-year-old leader is on his way out.The prospect of political instability in the eurozone's third-largest economy whacked the euro and threatens to deal a serious blow to shares of struggling Italian banks such as Banca Monte dei Paschi di Siena SpA, which is scrambling to draw a line under a pile of bad loans and raise capital from private investors at the same time.

From Eurozone, on Wednesday, German Industrial Production data was released. In October 2016,production in industry was up by 0.3% from the previous month on a price, seasonally and working day adjusted basis according to provisional data of the Federal Statistical Office (Destatis). In September 2016, the corrected figure shows a decrease of 1.6% (primary –1.8%) from August 2016. In October 2016, production in industry excluding energy and construction was up by 0.1%. Within industry, the production of capital goods increased by 0.5% and the production of consumer goods by 0.1%.The production of intermediate goods shows a decrease by 0.5%. Energy production was down by 0.5% in October 2016 and the production in construction increased by 1.7%.

Focus of the Thursday's session was on ECB interest rate decision and the following press conference. The European Central Bank extended its quantitative-easing program until the end of 2017, while reducing the monthly pace of purchases to 60 billion euros ($65 billion) from 80 billion euros starting in April. The Governing Council also said it will step up purchases again or prolong them if needed. Policy makers kept the main refinancing rate at zero, the deposit rate at minus 0.4 percent and the marginal rate at 0.25 percent, as predicted by in a Bloomberg survey of economists.

ECB Governor Mario Draghi said that cutting QE to €60 billion a month is not ‘tapering’ and added that tapering was not discussed at today’s meeting. Draghi said the decisions were taken to ensure the ECB has a “sustained presence in the market”. The ECB also updated its economic forecasts and said it now expects slightly faster growth and higher inflation in 2017. Draghi also urged European leaders governments to “intensify” their efforts to create more growth-friendly fiscal policies and called for the “swift and effective implementations of structural reforms” to underpin the recovery.

This week markets will be looking at:

German ZEW Economic Sentiment/ZEW Economic Sentiment (Tuesday 11:00)

Industrial Production (Wednesday 11:00)

French Flash Manufacturing PMI/French Flash Services PMI (Thursday 9:00)

German Flash Manufacturing PMI/German Flash Services PMI (Thursday 9:30)

Final CPI (Friday 11:00)

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