Weekly Outlook: 2016, March 20 - 27

German Ifo Business Climate and Economic Sentiment, Inflation data from the UK, US durable goods orders, Unemployment claims and GDP data. These are the main events on forex calendar.

1. Eurozone German Ifo Business Climate: Tuesday, 9:00. German manufacturers’ sentiment declined in February to 105.7 from 107.3 posted in the previous month. The fall projects the effects of the slowdown in emerging countries on the German economy. The majority of responders were negative about future business outlook especially in the manufacturing sector. German business climate is expected to rise to 106.1 this time.
2. UK Inflation data: Tuesday, 9:30. Inflation soared up to its highest rate for a year in January amid rises in the price of alcohol and clothing. Consumer prices edged up 0.3% from 0.2% in December, in line with market forecast. However, despite the rise, the Bank of England expects inflation to remain subdued below the government’s 2% target. Weak oil prices limit inflation pressures, leaving the UK central bank in no hurry to raise rates above 0.5%. The bank forecasted a 0.5% inflation rate by the summer, however economists expect lower inflation this year. Analysts forecast CPI will grow 0.4% in February.
3. Eurozone German ZEW Economic Sentiment: Tuesday, 10:00. German Investor sentiment took a nosedive in February, reaching the lowest level since October 2014, amid global slowdown and growing uncertainty around the continuous fall of oil prices. ZEW economic institute German investor confidence posted 1.0 points following 10.2 in the previous month. Economists expected an even worse reading of 0.1. However, despite the decline in oil prices, the central bank noted that cheap energy contributes to domestic economic activity. German investor sentiment is expected to reach 6.3 in March.
4. US Crude Oil Inventories: Wednesday, 14:30. U.S. crude oil stocks increased last week to record highs for a fifth continuous week as gasoline inventories declined amid strong demand. Inventories increased 1.3 million barrels considerably lower than the 3.4 million-barrel increase expected by analysts. Gasoline demand over the past four weeks was up 6.4% from a year ago at 9.4 million barrels per day.
5. US Durable Goods Orders: Thursday, 12:30. U.S. orders for long-lasting goods leaped 4.9% in January posting the biggest gain in 10 months, despite softer business investment. The reading followed a revised 4.6% contraction in the prior month. Economists believe the rise is not a temporary incident but an ongoing trend. Analysts expected a smaller rise of 3.0%. Orders rose across the board; Airplane orders edged up 11.5%, orders for new cars and trucks climbed 3%. Core orders, excluding transportation increased 1.8%, far better than the 0.2% expected by analysts.
6. US Unemployment Claims: Thursday, 12:30. The number of Americans filling initial applications for unemployment benefits increased by 7,000 to 265,000 last week. The reading was broadly in line with market forecast. This week’s release posts the 54th straight week where claims are below 300,000, indicating a robust employment market. The four-week moving average increased by 750 to 268,000.
7. US GDP data: Friday, 12:30. The US economy expanded at a slower pace than initially forecasted in the third quarter of 2015 rising 2.0%. The Fed does not expect much improvement in 2016, estimating growth of 2.1% to 2.4%. The main cause for the slowdown is attributed to reduction of inventory stocks. The Fed forecasts the economy will expand with solid job gain and accelerating wage growth.

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US Dollar Forecast – Dollar Tumbles Third Straight Week, Is the Long-Term Bull Trend Over?
For data, the coming week is light for influence. Another round of Fed speakers will be on deck with the most influence for rate speculation.

Euro Forecast - Did Draghi Finally Find a Recipe For Strength?
For next week, we adopt a bullish stance on the Euro as positioning remains stretched to the down-side while prices have continued to rise, and this most recent move from the ECB will likely continue to bring strength into the European banking sector which can certainly drive additional capital flows into Europe, the Euro and European Banks. As a supplemental factor, it would appear that Central Banks are trying to avoid ‘beggar thy neighbor,’ weakness-based regimes.

British Pound Forecast – GBP/USD Rebound to Accelerate on Sticky UK CPI, Shift in FX Sentiment
At the same time, the recent weakness in the greenback may contribute to a further appreciation in GBP/USD as the Federal Reserve cuts its growth and inflation forecast, with central bank officials laying out a more gradual path for future interest rates. Even though the U.S. economy approaches ‘full-employment,’ Fed Chair Janet Yellen may further tame interest-rate expectations and endorse a wait-and-see approach for most of 2016 as the central bank continues to monitor the external risks surrounding the region. As a result, the dollar stands at risk of facing additional headwinds over the near to medium-term as market participants scale back bets for higher borrowing-costs this year.

Australian Dollar Forecast – Australian Dollar May Correct Lower After Hitting 9-Month High
Looking ahead, a lull in high-profile event risk on the domestic and the external fronts offers prices the opportunity to consolidate recent volatility. The upcoming week will also be shortened by closures for the Good Friday holiday across most major exchanges. This is likely to bring ebbing liquidity in the second part of the week. While thin trading conditions may make for even more restrained activity, it could likewise amplify kneejerk price swings in the event that an unexpected headline of significance crosses the wires. With that in mind, traders may look to trim exposure ahead of the drain in the first part of the week. This could bring an unwinding of long-AUD bets, driving a retracement downward.

New Zealand Dollar Forecast – NZD/USD Hits 2016 Highs As Fed Backs Off Aggressive Hike Path
Considering the upcoming data, NZD/USD may continue to advance into the December high (0.6882), and the key developments coming out of New Zealand’s construction, retail spending and business services could make up for the drop in Dairy exports. If the New Zealand economy remains stable at the same time that the U.S. Dollar goes without a bid, we could soon move closer to 0.7000.

Gold Forecast – Gold Rally Capped Post FOMC- Bullish Invalidation 1194
From a technical standpoint, gold is trading at some tricky levels as the pair struggles to solidify a break above a parallel extending off the 2015 October high as momentum continues to hold below the 70-threshold. The risk remains for a pullback in price with interim support eyed at 1246/50 backed by soft support at 1225 & our bullish invalidation level at 1194. We’ll be looking for move lower towards these levels to offer favorable long-entries with a breach of the highs targeting the 2015 high-week close backed at 1294 closely by the 2015 high-day close at 1301. Subsequent topside targets are eyed at the 2014 high week reversal close at 1293.

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