EUR/USD Forecast Oct. 26-30

EUR/USD  totally collapsed after Draghi hit it hard. Will it be able to stage a recovery or does it have lots more to fall from here? An important German survey and inflation numbers stand out.  Here is an outlook for  the highlights of this week and an updated technical analysis for EUR/USD.

Expectations were high for the ECB meeting and Draghi easily leaped over them, over-delivering on thick hints: from  expanding and extending QE through opening the door for a rate cut and also some  skills, such as the use of the word “vigilant”. This resulted in a crash worth over 300 pips that lasted  well over a day and pierced through uptrend support. The dollar also enjoyed some back wind  from better home sales and jobless claims. Good euro-zone PMIs only temporarily helped the euro.

EUR/USD daily graph  with support and resistance lines on it. Click to enlarge:

1. Bundesbank Monthly Report: Monday, delayed from last week. The German central bank publishes a monthly report about the state of the economy, employment and inflation. The most interesting part would be an assessment of the VW scandal to the German  economy. The  car maker is not only a symbol of German industry but also a huge employer in Germany. Also other  companies are impacted by the supply chain.
2. German Ifo Business Climate: Monday, 9:00. Germany’s No. 1 Think Tank is expected to show a small decline in business confidence, from 108.5 points in September to 108.1 now. The wide survey will also incorporate the Chinese slowdown in addition to the Volkswagen crisis. The ZEW figure already missed expectations.
3. ECB Monetary Data: Tuesday, 9:00. The ECB’s monetary stimulus did succeed in pushing the money in circulation, M3 Money Supply, to higher levels, with an annual expansion of 4.8% in August. A rise to 5% is on the cards now.  Private loans are growing at a rate of 1% as of August and September is expected to see an acceleration to 1.1%.
4. German Import Prices: Wednesday, 7:00. Import prices are falling sharply, and this feeds into inflation figures. A big drop of 1.5% was seen in August and a more moderate  slide of 0.2% is on the cards now.
5. German GfK Consumer Climate: Wednesday, 7:00. This survey of  2000 consumers has  topped out a few months ago above the 10 level. From 9.6 points in September, a level of 9.5 is predicted now.
6. German CPI: Thursday, the various German states throughout the European morning and the final number at 13:00. The early number for October is predicted to show a slide of 0.1% in prices, following a bigger than expected  dip of 0.2% in September m/m. Even Germany, that is enjoying solid growth, is experiencing falls in prices.
7. Spanish CPI: Thursday, 8:00. The euro-zone’s fourth largest economy has enjoyed strong growth but this came on top of deflation. After a big year over year drop of 0.9% in September, an annual level of -0.6% is on the cards, well below the recent euro-zone levels.
8. German Unemployment Change: Thursday, 8:55. The zone’s locomotive has seen a small rise of 2K in the number of unemployed. A drop of 4K is on the cards. Despite the disappointing rise last time, Germany is enjoying a low unemployment rate.
9. German Retail Sales: Friday, 7:00. Consumers were less busy in  August: a drop of 0.4% was recorded in the volume of sales. A bounce back of +0.4% is on the cards now. With exports to China slumping, internal demand is key to the economy.
10. French Consumer Spending: Friday, 7:45. The French version of retail sales has been flat in August. A recovery is expected now with +0.2%.
11. Spanish Flash GDP: Friday, 8:00. Spain’s growth has been a success story. The early release of this figure (in comparison with other EZ countries) makes it more  significant. After growing 1% in Q2, the zone’s fourth largest economy is expected to report a similar growth rate of 0.9% q/q.
12. Inflation data: Friday, 10:00. The euro-zone slipped back to deflation in September, with -0.1% and this was a key reason for Draghi’s strong words. A return to a flat 0% is on the cards now. Core inflation is doing better with +0.9% and the same figure is expected here. Note the ECB’s inflation target is “2% or a bit below”.
13. Unemployment rate: Friday, 10:00. At 11%, the unemployment in the euro-zone is not encouraging. While it did slip from higher levels, it  isn’t going down fast enough. No change is expected.

* All times are GMT

EUR/USD Technical Analysis

Euro/dollar  began the trading week under 1.1375 (mentioned last week) before tumbling down spectacularly and stopping only at the round level of 1.10.

Live chart of EUR/USD: [do action=”tradingviews” pair=”EURUSD” interval=”60″/]

Technical lines from top to bottom:

We start from lower ground this time. 1.1875 was the low seen in 2010 and also capped the pair earlier this year. The August high of 1.1712 is the next line.

1.1680 capped the pair in January on its way down.  The next line is a clear separator of ranges: 1.1535. It was last seen in January as well.

The very round 1.15 level is of importance thanks to its psychological role. It is closely followed by 1.1460 that served as resistance earlier in the year, twice.

The historic line of 1.1373 (from November 2003) still  has a role as resistance, but it is certainly weakening. 1.13, the round number,  showed its strength in capping a recovery attempt in early September.

1.1215, which capped the pair both in June and in August is clear resistance. It is followed by a low seen in  January  of 1.1113 which is nearly 0.90 on USD/EUR.

1.1050 returns to the chart after serving as a stepping stone for the pair to rise to higher ground. 1.0950 is a pivotal line in the range.

1.0865 provided some support in late May and is weak support before a stronger line: 1.0810, which was the bottom in July also nicely coincides with the low seen in May and is strong support..

The next line is  1.0760, which was the low point in both July and August 2003. 1.0715 joins the chart after temporarily capping the pair in April 2015.

I remain  bearish  on EUR/USD

Contrary to September, this time the euro failed to recover quickly, and this shows how powerful Draghi’s words were and how determined the ECB is in weighing down the euro. Further evidence of low inflation is likely to press the common currency lower. And even if the Fed provides a dovish message, something that is partially priced in, Draghi has certainly become master dove.

In our latest podcast we  do a Draghi drill down, cover CAD and explain silver investment.

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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.