EUR/USD settled in range in a week that saw fear return to the markets. Industrial production, Draghi’s testimony, German ZEW Economic Sentiment and ZEW Economic Sentiment, inflation data are the highlights of this week. Here is an outlook on the highlights of this week and an updated technical analysis for EUR/USD.
A shareholder in a major Portuguese bank missed a debt payment and the fear that gripped the markets already triggered a delay of some bond auctions in neighboring Spain. While the situation seems contained, we were reminded that the debt crisis is not fully resolved. Also the weak industrial output data weighed on the euro. In the US, we received more good news from labor market indicators, yet markets are still uncertain about the timing of the US rate hike, and that was not helpful to the greenback. The odds seem stacked against the pair, but the range is well maintained. Will we see a breakout now?
[do action=”autoupdate” tag=”EURUSDUpdate”/]EUR/USD daily graph with support and resistance lines on it. Click to enlarge:
- Industrial Production: Monday, 9:00. Eurozone industrial output increased more than expected in April, rising by 0.8%, following a 0.4% decline in March, beating forecasts for a 0.5% rise. The main contributor to this rise was a 2.5% increase in energy products, non-durable consumer goods by 2.1% and intermediate goods by 0.6%. A smaller rise of 0.3% is expected this time.
- German ZEW Economic Sentiment : Tuesday, 9:00. Business sentiment in Germany worsened further in June, falling to 29.8 from 33.1 in May, despite expectations for an increase to 33.4. However, Current assessment index tracking edged up to 67.7 points from 62.1 in April. Economic moral is expected to improve in July after the ECB’s actions as well as encouraging forward-looking economic indicators. Meanwhile, economic sentiment in the Eurozone climbed to58.4 from 55.2 posted in May. However, the rise was below expectations of 59.6. German sentiment is expected to rise to 33.4 and sentiment in the Eurozone is predicted to rise further to 62.3.
- Italian Trade Balance: Wednesday, 8:00. Italy’s trade surplus contracted more than expected in April, reaching a surplus of €3.505 billion from €3.886 billion recorded a month earlier. Analysts expected a higher surplus of €4.27 billion. Exports increased 2%, year-on-year, while imports declined 2.9% in the month. Italy’s trade surplus is expected to decline further to €3.23 billion.
- Trade Balance: Wednesday, 9:00. The euro zone’s trade balance widened less-than-expected in April reaching 15.8 billion, following 15.4 in the previous month. Analysts expected the Eurozone trade balance to reach 15.9 billion. The euro zone’s trade balance is expected to expand further to 16.3 billion.
- CPI: Thursday, 9:00. According to the initial, flash publication, the euro-zone’s consumer price index remained unchanged at a y/y level of 0.5% – rock bottom. However, core CPI edged up to 0.8% y/y. These numbers are expected to be confirmed in the final read. These low levels are troublesome for the ECB. The effects of the new policy measures are still to be seen.
- Current Account: Friday, 8:00. The Eurozone’s current account surplus increased to 21.5 billion euros in April, from 19.6 billion euros in March. On a yearly base, the current account showed a surplus of 248.7 billion euros, compared to 177.7 billion euros a year earlier, the data showed. The Eurozone’s current account surplus is expected to grow further to 24.3 billion.
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar began the week with a short-live dip. It then advanced but met resistance at 1.3650 (mentioned last week) before sliding back towards the lower end of the range.
Live chart of EUR/USD: [do action=”tradingviews” pair=”EURUSD” interval=”60″/]
Technical lines from top to bottom:
1.3830, which was a long serving 2013 peak comes back into the focus after capping the pair in March 2014 and serving as a clear separator several times. 1.3785 worked as support for the pair during April and served as resistance beforehand.
1.3740, which provided some support at the end of 2013 is now key support to the downside. The round number of 1.37, is another support line after capping the pair in December yet it is weakening.
1.3677 was the peak in June so far, and could turn into important resistance. 1.3650 worked as strong resistance during May and June but is weakening now.
1.3585 served as the bottom of the range and still carries weight despite the breakdown in June. 1.3550 worked as support in January but is now weakening The round number of 1.35 worked as the last cushion in June and is strong also due to the roundness.
1.3450 worked as resistance in August 2013 and as support in September and October. It is now a key line on the downside. The round number of 1.34 was last seen in December as a stepping stone for the pair on its way down.
Downtrend resistance
As the thick black line on the chart shows, the pair is trading under downtrend resistance since it peaked near 1.40 in early May. The line is respected on the daily chart.
I remain bearish on EUR/USD
The ECB can celebrate the end of euro appreciation, but the exchange rate is still too high. We cannot rule out another attempt of Draghi to talk down the exchange rate. Also the issues in Portugal are a stark reminder that the underlying issues of the debt crisis are still not behind us. In the US, the Fed’s favorite jobs indicator is back to pre-crisis levels, and a respected Fed watcher says that the time is ripe for the Fed to acknowledge the improvement in the economy. Yellen could step up to the plate.
All in all, there is now more room to the downside for the pair. More:
- EUR/USD going nicely from top to bottom of the range – here’s why
- EURUSD Is Looking Bearish – Elliott Wave Analysis
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.
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