EUR/USD advanced for a fourth consecutive week and is at a 4 month high, riding on the dollar’s weakness. Will the pair make a correction or continue advancing steadily? German ZEW Economic Sentiment and Flash PMI figures will provide insights about the direction of the euro-zone economies, and are the main events of the week. Here is an outlook for the week’s events and an updated technical analysis for EUR/USD.
The discussions in the German constitutional court about the legality of the OMT backstop mechanism didn’t manage to undermine the euro. Also inflation numbers, which remain weak but do not point to deflation, have been supportive. A worrying rise in bond yields of Spain and Italy has been contained so far, but yields rise without the euro taking a hit? In the US, data remained mixed for another week, as markets await the FOMC decision on Wednesday. Let’s start:
Updates:
- A mild hawkish change? 4 scenarios for the Fed decision – FOMC preview
- EUR/USD is stable around 1.3350. Elliott Wave Analysis: Sideways Within Uptrend
- Italy’s trade balance fell short of expectations, with a surplus of 1.91 billion euros. A bigger release comes from Germany. See how to trade the ZEW indicator with EUR/USD.
- And, on Monday at 14:00 GMT, you are welcome to join a free webinar titled Why is the euro so high? Sign up here.
- ECB President Mario Draghi delivered remarks at the Bank of Israel. Draghi left open the possibility of negative rates as well as other non-standard monetary measures.
- German ZEW Economic Sentiment rose to 38.5 points, just above the estimate of 38.2. Eurozone ZEW Economic Sentiment improved to 30.6, beating out the estimate of 29.4.
- EUR/USD tested the 1.34 line, but has retracted to the mid-1.33 range.
- The G8 wrapped up a meeting in Northern Ireland, and the leaders announced that negotiations on a EU-US free trade pact would commence shortly.
- ECB head Mario Draghi addressed the Bank of Israel in Jerusalem.
- German 10-year Bond Auction posted average yields of 1.55%, up from the previous auction.
- The US Federal Reserve will release a policy statement later on Wednesday.
- EUR/USD continues to test 1.34 on the upside.
- The Fed said that downside risk have diminished – the US dollar rises across the board, and EUR/USD falls below 1.33.
- Eurozone PMIs were positive, with the exception of German Manufacturing PMI, which missed the estimate. German PPI also failed to meet expectations.
- Eurogroup finance ministers are meeting in Brussels on Thursday, with the EU finance ministers meet on Friday.
- Spanish 10-year bonds posted an average yield of 4.77%. This was higher than the previous yield of 4.52%.
- Eurozone Consumer Confidence remains dismal. The indicator came in at -19 points, although this was higher than the estimate of -22 points.
- Eurozone Current Account will be released on Friday. The markets are expecting a much smaller surplus than last month.
- EUR/USD continues to fall, and was trading slightly above the 1.32 line.
- The EU Finance Ministers are meeting on Friday.
- Updated Elliott Wave Analysis: EURUSD Is Bearish; 1.3260/1.3300.
- Eurozone Current Account was a pleasant surprise for the markets, coming in at EUR 19.5 billion. This surplus was much higher than expected, as the estimate stood at EUR15.1 billion.
- Technical analysis: EUR/USD Extends Decline towards 1.3000 and Lower
EUR/USD daily graph with support and resistance lines on it. Click to enlarge:
- Italian Trade Balance: Monday, 8:00. Italy registered a trade surplus of 3.2 billion euros in March, a big improvement from the EUR1.8 billion trade surplus in the same month of 2012. However this improvement was characterized by a sharp decline in domestic demand. Export plunged 6.0% while import went down even further by 10.6%. The major drops in exports were to Spain, the Netherlands and Turkey. A surplus of 2.48 billion is expected now.
- Trade Balance: Monday, 9:00. Trade surplus in the 17 countries that share the euro, registered a record high of 18.7 billion from €12.7 billion in February, driven by a continued fall in imports, indicating weak domestic demand compared to a steady rising in exports. Exports grew 2.8% from February, while imports fell 1%. Germany continued to be the main holder. A big surplus of 21.2 billion is predicted now.
- G8 Meetings: Mon.-Tue. The G8 summit is meeting in Ireland for two days. Leaders from Canada, France, Germany, Italy, Japan, Russia, USA and UK will discuss ways in which we can support the development of open economies, open governments and open societies to unleash the power of the private sector, advancing trade, ensuring tax compliance and promoting greater transparency. UK is the head of the G8 thus year. Japan’s policies will be in the spotlight.
- German ZEW Economic Sentiment: Tuesday, 9:00. German analyst and investor climate climbed in May to 36.4 points from the sharp drop to 36.3 in April, indicating the euro zone’s largest economy is back on track to a timid recovery. Economists expected a stronger figure of 39.5. The slow rise could be caused by the weak economic conditions in the Eurozone. The all-European figure is predicted to advance from 27.6 to 29.4 points.
- German PPI: Thursday, 6:00. Producer prices fell 0.2% in April, in line with market expectations. Energy costs declined 0.3% but in general prices were mostly unchanged. The subdues prices indicate, inflation will remain low raising the likelihood of additional ECB easing. It is expected to remain flat this time.
- French, German and Euro-area PMI’s: Thursday. The early indicator of manufacturing and services PMI in Europe advanced better than expected in May although still reflecting contraction. Eurozone Manufacturing PMI increased to 47.8 from 46.7 a month ago while Services PMI improved to 47.5 from 47.0 a month ago. French service sector remain unchanged at 44.3 while the manufacturing sector improved to a 9-month high of 45.5 from 44.4 in April. Germany’s flash manufacturing PMI improved to 49.0 from 48.1 in April and the service sector increased slightly to 49.8 from 49.6 in the previous month. Only the German services sector is expected to return to growth, with 50.1 points.
- Consumer Confidence: Thursday, 14:00. Consumer climate in the euro zone improved slightly to -21.9 from -22.3 in April, broadly in line with expectations. Consumer spending amounts to more than half of euro zone economic output, however the ongoing recession reduced disposable income, hindering the Eurozone’ economic recovery. No change is expected now.
- Current Account: Friday, 8:00. The euro-zone’s current account surplus surged in March to an all-time high, due to rising exports. The current account surplus, increased to 25.9 billion euros from a downwardly revised 14.6 billion euros in February. However unless domestic demand picks-up, economic recovery in the Eurozone cannot begin. The euro-zone economy declined 0.2% in the first quarter due to shrinking domestic demand outweighing the rise in exports.
*All times are GMT
EUR/USD Technical Analysis
Euro/dollar began the week above support at 1.3160 (mentioned last week), and it gradually made its way up from there. The pair peaked at 1.3390, just under 1.34 before closing at 1.3346.
Technical lines from top to bottom:
1.3710 was the peak in early 2013 and is the ultimate peak. 1.3580 capped the pair during February and is minor resistance.
1.3480 was the “shoulders” of an old H&S pattern. 1.3434 is a line in the middle of the 1.34 to 1.3480 range.
The round line of 1.34 served in both directions when the pair traded in higher ground. The pair got close to this line in June. 1.3350 provided support when the pair traded higher in February and now serves as a pivotal line.
1.3255 provided support during January 2013 and also beforehand. A recovery attempt failed to reconquer this line at first, but now this line is strong support. 1.32 is a clear top after capping the pair twice in April 2012 and then in May. This is a round number as well.
1.3160, which separated ranges in May 2013 is a now weakening. 1.3100 is a minor line after working as temporary resistance in December 2012.
It is followed by 1.3050, which proved be strong support in May 2013, defending the round number in more than one occasion, and now works as support. The very round 1.30 line was a tough line of resistance and is becoming stronger after serving as a double top in May 2013. In addition to being a round number, it also served as strong support and recently worked as a pivot line.
1.2940 is the next line of support, replacing 1.2960. It worked as such during April and May 2013. Lower, 1.2890 worked in both directions during 2012 and was the beginning of the uptrend support line. It is somewhat weaker now.
1.2840 worked as a cushion for the pair during May 2013 and is a pivotal line at the moment. Lower, the round number of 1.28 was the bottom of a long term wide range in 2012 and its breach in May 2013 was not confirmed.
Below, 1.2750 worked as a separator of ranges during November, and stopped the pair’s drop in March. This is a key line on the downside, as clearly shown in the first week of April. This is followed by the round number of 1.27, which is a minor line.
Steep uptrend support
As the thick black line on the chart shows, EUR/USD is trading along steep uptrend support since late May. Can it keep up with this line?
I am neutral on EUR/USD
The pressure on the euro is weaker after Draghi put negative rates on the backburner. However, the economic situation hasn’t improved. The ECB actually downgraded its forecasts. The PMIs could serve as a stark reminder of the ongoing recession in Europe.
In the US, signs remained mixed: while jobless claims and retail sales exceeded expectations, consumer sentiment fell. The Fed is not expected to point directly to tapering of QE, even if it might begin hinting about it. The actual decision to taper (which still means monetary expansion) could take a long long time.
All in all, the direction of the pair seems down, but the FOMC decision is a bit of a wild card.
More technical analysis:
- EUR/USD Technical Analysis – more levels for the pair by Nick Simpson.
- EUR/USD At Temporary Resistance; Be Aware Of Reversal – Elliott Wave Analysis
If you are interested a different way of trading currencies, check out the weekly binary options setups, including EUR/USD and more. 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
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