EUR/USD fell to lows last seen over 10 years ago after receiving an unexpected blow from the Swiss. Tension was growing towards this week’s big event: the ECB rate decision, in which QE is on the cards. We also have a few other events this week. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.
The Swiss National Bank shocked financial markets by removing the floor of 1.20 under EUR/CHF after more than three years. This sent the franc up by double digits and hit the euro hard, falling below 1.15 for a while.. Many traders and quite a few brokers were impacted. The SNB kept the EUR bid, and that’s gone now. The move is certainly related to the upcoming ECB decision and implies a very big QE program. Tension also mounts towards the elections in Greece on January 25th: one poll showed an absolute majority for the opposition, while others showed a very close race. There is also concern about capital outflows which have intensified and already triggered a tapping of emergency loans. In the US, data has been mediocre, with optimism from consumers contrasted by weak spending. Also manufacturing and jobs numbers were somewhat contradicting. All eyes are now on Draghi. Let’s start:
[do action=”autoupdate” tag=”EURUSDUpdate”/]EUR/USD daily chart with support and resistance lines on it. Click to enlarge:
- Current Account: Monday, 9:00. After teh euro lost its SNB bid, at least it enjoys a current account surplus. This stood on 20.5 billion euros in October and we could see something similar for November.
- Bundesbank monthly report: Monday, 10:00. The German central bank opposes QE and made it clear several times. The monthly report usually focuses on the local economy. It will be interesting to see how the Buba sees the impact of oil prices on Germany.
- German PPI: Tuesday, 7:00. Producer prices from the continent’s largest economy adds to the mix of inflation figures. After surprising by remaining flat in November, a drop of 0.3% is expected for December, and this may be attributed to oil prices.
- German ZEW Economic Sentiment: Tuesday, 10:00. After hitting negative ground in October, this survey of around 275 analysts and investors has rebounded quite nicely. It reached 34.9 points in December and is expected to advance to 40.1 points in January. The all-European figure is also predicted to climb to 37.6 points.
- Spanish Unemployment Rate: Thursday, 8:00. The euro-zone’s fourth largest economy is suffering from a sky high unemployment rate. The good news is that it is falling. From 23.7% in Q3, a tick down to 23.6% is predicted for Spain, that is experiencing growth.
- ECB rate decision: Thursday, 12:45, press conference at 13:30. QE seems imminent after a series of big hints from Draghi and his colleagues and after the nod from the ECJ. In addition, some details have already emerged and it seems like the ECB is setting out a plan that would allow national central banks to buy up 20% or 25% of national debt. This is a huge program that could theoretically surpass €2 trillion, exceeding current estimates of €500 -€750 billion. QE, or buying of sovereign bonds, is basically priced in after recent comments and the fall of the euro-zone into deflation. The size and the operational details are still unclear and this is set to be a source of even more volatility and perhaps even more falls.
- Consumer Confidence: Thursday, 15:00. The official consumer confidence number from Eurostat is expected to remain at -11 points in December. This is a survey of 2300 consumers.
- Flash PMIs: Friday, French data is released at 8:00, German at 8:30 and euro-zone data at 9:00. The forward looking purchasing managers’ indicators from Markit show a picture of very fragile growth. The preliminary data for January carries predictions for a small improvement. France saw a manufacturing PMI of 47.5 points in December, below the 50 point threshold separating growth and contraction. This is now expected to advance to 48.1 points. The services sector is predicted to edge up from 50.6 to 50.9 points, reflecting weak growth. German manufacturing is hardly growing at 51.2 points, and is now predicted to advance to 51.8. The services PMI carries expectations for a rise from 52.1 to 52.6 points. The all-European manufacturing sector is expected to see a rise from 50.6 to 51 points while the services sector is likely to move up from 51.6 to 52.1 points.
- Belgian NBB Business Climate: Friday, 14:00. This small country in the center of Europe has seen its business climate slide to -6.9 points. A bounce back to -6.1 is on the cards now. The negative number reflects worsening conditions.
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar began the week in a calm manner, trading between the 1.1750 and 1.1867 lines (mentioned last week). It then collapsed with the Swiss shocker below 1.17 and hit a swing low of 1.1567. A bounce to 1.1650 was followed with a crash below 1.15, but from there we had a nice bounce back to a closing at 1.1564.
Live chart of EUR/USD: [do action=”tradingviews” pair=”EURUSD” interval=”60″/]
Technical lines from top to bottom:
1.2280 provided support to the pair in December, but it isn’t a strong line. 1.2245 served as support several times in that summer, and 1.2170 was the “shoulder” in the inverse H&S pattern around the same time. It was also the low point in December 2014. The last line in the previous cycle is the 2012 low of 1.2040.
The very round number of 1.20 is still of very high importance. 1.1950 is where a recovery attempt was stopped in January 2015.
Below, the post crisis low of 1.1867, recorded should be watched. 1.1750 was a low point the pair reached during the recent avalanche. The round number of 1.17 was the launch value of the pair in 1999 and has a symbolic meaning.
Below, we have the post Swiss bounce of 1.1650 to provide a pivotal line. Lower, the initial swing low of 1.1565 is another pivotal line around these trading ranges.
The round number of 1.15 follows as battleground to the downside. The new 2015 low of 1.1460 is the next line.
For the next lines, we need to go back to the previous decade: 1.1373 was the low line seen in November 2003. The next line is even more round: 1.10. It is followed by 1.0760, which was the low point in both July and August 2003
I am bearish on EUR/USD
Everything already went against the euro with deflation, upcoming QE and outflows from Greece. The common currency now lost its strong Swiss bid. The move by the SNB (with its accompanying hints) and reports about a flexible QE program probably mean a much bigger move than the market is expecting. Expectations for a €500 billion program are probably priced in, but it could certainly be larger, thus more painful for the common currency. In the US, things aren’t all rosy, but even if Yellen and co. take their time with a rate hike, the euro has a lot on its own to continue falling.
In our latest podcast we analyze the SNBomb, do an ECB Preview, discuss US wages, dive into Saudi costs and the look at the Aussie
Further reading:
- For a broad view of all the week’s major events worldwide, read the USD outlook.
- For the Japanese yen, read the USD/JPY forecast.
- For GBP/USD (cable), look into the British Pound forecast.
- For the Australian dollar (Aussie), check out the AUD to USD forecast.
- USD/CAD (loonie), check out the Canadian dollar forecast
- For the kiwi, see the NZDUSD forecast.