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    Weekly Market Review 25-31/05/2015

    Euro Heading for Parity with the Dollar? 

    Though the events of last week precipitated it, the swift change of sentiment for the Euro will undoubtedly dominate the trading floor this week. The reason was a not very well kept secret. Despite a closed door conference, we learned that the ECB intends to intensify liquidity injections. That would effectively cause trend of the Euro’s recent rebound to crumble like a stale cookie.

    The now-public statement from ECB board member Benoit Coeure stated that the ECB intends to purchase more government bonds amid low seasonal liquidity. Naturally, investors were quickly compelled to swing right back into Euro selling. The sell-off was further enforced by still dismal Eurozone inflation data and a softer than anticipated ZEW reading from Germany. As trading begins this week investors will be keen to see if the Euro is indeed approaching its March lows or if it will stabilize after last week’s nose dive.

    For investors, this week’s developments, viewed as pivotal, will be the ones to rubber-stamp the month of May, typically a notoriously negative month for the Euro. If  the Euro fails to edge a bit higher by the week’s end, the pattern of the monthly chart will pin down the $1.05 level, with the March low as the next target. Worse, a retest of the March low will induce a chilling thought that Euro bulls would prefer to ignore, and that is the Euro and Dollar reaching parity.

    Durables, Growth and the American Consumer

    While the question of Euro–Dollar parity will be looming, investors will divert some of their attention across the Atlantic to the upcoming release of high-profile, market-moving US data. On the agenda are three high-profile releases; durable goods, consumer sentiment and, the grand finale, the second release of the US Q1 GDP growth.

    Durable goods, one of the more highly watched signs of demand by businesses and consumers, will be the first of the three to make its way through the news wires. While Durable Goods ex transportation (which excludes distorting data from sectors such as the aviation industry) has been negative over the past several months there is an encouraging trend. Each and every month the pace of the slowdown has relented until last month when Durable Goods ex transportation fell by a mere 0.2%. So what are investors looking at in this month’s reading? You guessed it; they want Durables to finally swing back above 0% month-over-month and signal a turnaround in sentiment.

    Later in the day, markets will get the second high-profile release; the highly-anticipated US consumer confidence reading. With signs of a soft patch in economic growth last month, this month investors will want to see consumer confidence edge higher, above 95, which will confirm that the US consumer is back. Of course, that does beg a very pertinent question: Is the worst of the US economic troubles behind us?

    Finally, on Friday, we will get the second release of US Q1 growth. Although the second release is not nearly as important as the first reading it is still highly relevant. Since the growth figure does historically tend to be revised in the second release, investors will be keen to see the true direction. A growth revision higher may tilt the Dollar higher and, of course, vice versa.

    Down to Business

    Overall , sentiment is expected to favor the dollar this week. However if the three major releases of US data will paint a gloomy picture for the US, then Euro selling could be halted. In any other case if Euro selling will carry on until the end of the week, this could mean the March lows are about to be revisited and parity with the dollar is back on the table.

    On the Plate

    Durable Good Orders(Tuesday) – If Durable Goods excluding transportation will swing into positive territory it will be positive for the dollar.

    Housing Price Index(Tuesday) – If the gain in housing prices will accelerate it will favor both the dollar and Wall Street.

    S&P/Case Shiller Home Price Index(Tuesday)- A reading above 5% Year on Year will favor the dollar and Wall Street.

    Consumer Confidence(Tuesday)- If US consumer confidence will beat expectations it will favor the dollar and vice versa.

    BoC Rate Decision(Wednesday) – If the BoC signals an upcoming rate hike , the Canadian dollar could gain ground.

    Japanese Core CPI(Thursday)- If the Japanese Core CPI continues to gain it will be considered Yen positive.

    US GDP Growth(Friday)- If US GDP growth is revised higher in the second release, it could favor the dollar. If growth is revised lower the dollar could end the week on a negative note.

    Chart of the Week – Gold

    Gold chart weekly

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