EUR/USD peaked at 1.34 and began descending, ending the week in lower ground. Comments about the euro’s strength and worries about Germany hurt the common currency. Two key German surveys and the Flash PMIs are the highlights of this week. Here is an outlook on the main market-movers this week.
“The exchange rate of the euro is dangerously high” said Jean-Claude Juncker. This began a debate about the rates and pushed the euro lower. The Euro zone disappointed with weak industrial data, the euro-zone contracted 0.3% In addition, Germany reported a drop in GDP for Q4 and forecasts for 2013 were lowered. Will the Eurozone stabilize in the next months or continue its downward trend?
Updates: German PPI declined by 0.3%, failing to meet the estimate of 0.0%. The Eurogroup met on Monday, and approved the next installment of aid to Greece. The Eurogroup has also started discussions with regard to direct recapitalization of banks through the ESM. Jean-Paul Juncker, head of the Eurogroup for the past eight years, stepped down from the post on Monday. He is being replaced by the Dutch finance minister, Jeroen Dijsselbloem. German ZEW Economic Sentiment was excellent, climbing 31.5 points. This easily beat the estimate of 12.2 points. The Eurozone ZEW Economic Sentiment also very sharp, coming in at 31.2 points. The estimate stood at 14.1 points. Both indicators had their best performances since May 2010. Spanish HPI improved slightly, but still declined by 2.2%. ECB President Mario Draghi will address an industrial forum in Frankfurt later on Tuesday. EUR/USD has been very volatile on Tuesday, and the pair was trading at 1.3316. Eurozone Consumer Confidence came in at -24 points, slightly better than the estimate of -26 points.
There was a host of PMI data out of France, Germany and the Eurozone on Thursday, and the euro reacted with sharp volatility. French PMIs were weak, as Manufacturing PMI came in at 42.9 points, and Services PMI at 43.6 points. Both indexes missed the market estimates, of 44.9 and 45.6 respectively. German Manufacturing PMI came in at 48.8, above the estimate of 47.1. Services PMI was very strong, hitting 55.3. This easily beat the forecast of 52.0. Eurozone Manufacturing PMI posted 47.5 points, beating the estimate of 46.6. Services PMI climbed to 48.3 points, just above the estimate of 48.1 points. The Spanish Unemployment Rate continues to look dismal, as it reached 26.0%. The estimate stood at 25.9%. Eurozone Current Account was excellent, boasting a surplus of 14.8 billion euros. This crushed the estimate of 6.5 billion. Italian Retail Sales sagged, declining by 0.4%. This was well below the estimate of a 0.2% gain. EUR/USD has recovered, as the pair was trading at 1.3349.
EUR/USD daily graph with support and resistance lines on it. Click to enlarge: 
- German PPI : Monday, 7:00. Producer prices went in line with predictions in November, contracting 0.1% following a flat reading in October. Lower energy prices caused this decline, however even without this impact of the PPI, inflation is subdued. Both the 12-month PPI and core PPI are well below 2%, and will not affect CPI. A flat reading is expected.
- Eurogroup Meetings: Monday. Eurogroup meetings are held in Brussels and attended by Finance Ministers from the euro area, the President of the European Central Bank and the President of the Eurogroup. The forum discusses economic and monetary issues of the Euro area. President of the Eurogroup Jean-Claude Juncker will step down after this meeting and be probably replaced by Dutch finance minister, Jeroen Dijsselbloem.
- WEF Annual Meetings: Tuesday. The World Economic Forum (WEF) will be held in Davos, Switzerland incorporating international political leaders, business leaders and journalists from across the globe. The forum will discuss global, regional and industrial issues with regards to economics, health and the environment.
- German ZEW Economic Sentiment and ZEW Economic Sentiment: Tuesday, 10:00. The ZEW Indicator of Economic Sentiment for Germany jumped 22.6 points in December to 6.9 points indicating optimism regarding Germany’s economic recovery in 2013. However, positive U.S. economic data may have contributed to this assessment. Meantime economic expectations for the Eurozone have increased in December as well rising by 10.2 points to 7.6 points. A rise to 12.2 is expected this time.
- Belgium NBB Business Climate: Wednesday, 14:00. Belgian business leaders were more optimistic in the fourth quarter rising from -13.4 to -11.8 in the 4th quarter, beating predictions for a reading of -13.1. An improvement to -10.9 is forecasted.
- Consumer Confidence: Wednesday, 15:00. Euro zone consumer confidence climbed moderately in December reaching -26.6 following -26.9 in the previous month, a bit lower than forecasted. Consumer spending was hurt by the debt crisis cutting disposable income and resulting in slow growth. A rise to -25 is expected.
- Spanish Unemployment Rate: Thursday, 7:00. Spanish job market condition worsened in the third quarter with a record high of 25% unemployment rate. This reading was the highest since the Franco dictatorship ended in the mid-1970s.This reading followed a 24.6% unemployment rate registered in the second quarter. Analysts are pessimistic regarding the job market condition in 2013 saying weaker growth with austerity measures, could easily increase unemployment to 26% in 2013.A rise to 25.2% is expected now.
- Flash PMI’s: Thursday. December’s Flash Purchasing Managers Indexes have shown modest improvement though still in negative territory. Eurozone Manufacturing PMI increased to 46.3 following 46.2 in November, a bit lower than the 46.6 forecast. Meanwhile the Service sector rose to 47.8 from 46.7, better than the 47.0 estimated. Germany Manufacturing PMI declined to 46.3 following 46.8 in November missing predictions for a 47.3 forecast, while the service sector crossed the 50 point line to expansion with a 52.1 reading after posting 49.7 in November. France Manufacturing sector rose a minor 0.1 points to 44.6, lower than the 45.0 anticipated while the service sector increased to 46.0 from 45.8 in November broadly in line with predictions. Despite the moderate climb the majority data points on an ongoing contraction in the Eurozone. Hopes of recovery in 2013 continue to rely on Germany’s growth prospects. The expected readings for the flash PMI are as follows: French Flash Manufacturing PMI- 44.9, French Flash Services PMI- 45.6, German Flash Manufacturing PMI – 47.1, German Flash Services PMI-52.0, Flash Manufacturing PMI- 46.6, Flash Services PMI- 48.1
- Current Account: Thursday, 9:00. The euro-zone’s current account surplus expanded in October, settling at EUR3.9 billion euros ($5.1 billion) after a surplus of EUR2.4 billion in September. Despite ongoing contraction in economic activity, October’s data are positive as exports outweighed imports in the month, which implies on increased economic output. Surplus is expected to reach 4.2 billion.
- German Ifo Business Climate: Friday, 9:00. Wednesday German Business Climate increased to 102.4 in November, the second consecutive rise, following 101.4 in the previous month, doing better than the 102.0 forecasted by analysts. The easing of the European debt crisis increase investors’ confidence, exports are expected to improve as well. Another rise to 103.1 is expected this time.
*All times are GMT.
EUR/USD Technical Analysis
€/$ started the week with an attempt to break the 1.34 line (mentioned in the previous week). After this move failed, the pair dropped to 1.3255 and tried again. The second drop ended in a weekly closure at 1.3320, just 20 pips below the previous close.
Technical lines from top to bottom:
1.3838 was a critical spot in both directions when the pair was trading on higher ground. 1.3750 was also a pivotal line in 2011. 1.36 was a cushion in the fall of 2011 and then switched to resistance.
1.3480 was the peak seen in February and provides a significant backstop to 1.34. 1.34 was a stubborn cap during the spring of 2012 and continued its stubborn stance in January 2013 – it is a key line.
1.3360 is the recent peak of January 2013 and is a stepping stone for the levels above. Below, 1.3290 served as resistance before the pair collapsed in May, After many failures to break higher, the euro finally pushed through.
1.3255 provided support during January 2013 and also beforehand. This is the bottom of the current range. 1.3170, which was the peak of September, served as support for the pair after the break in December and is a key line on the downside.
1.3130 proved to be strong resistance during December 2012 and now switches positions to support. 1.3110 is a minor line after working as temporary resistance in December 2012.
1.3030 provided some support at the same period of time, and also at the end of November 2012. Both are minor in comparison with the next line. The very round 1.30 line was a tough line of resistance for the September rally. In addition to being a round number, it also served as strong support. In January 2013 it served as the last line of support, at least for now.
It is closely followed by 1.2960 which provided some support at the beginning of the year and also in September and October – the line is strengthening once again after temporarily cushioning the fall during December.
1.2880 provided some support in October and also in late November and December. It proved to be a backstop on the initial false rally after Obama’s victory. 1.28 is the bottom border of the range, and was eventually left behind. The pair fell to this low in September and later got close to it.
1.2750 capped the pair after the Greek elections and also had a similar role in the past. It is now a pivotal line in the range. 1.2690 was the new low after the November breakdown, and also provided support on a second downfall attempt in November 2012.
1.2624 was the low in January and now serves as weak support,1.2590 was a cap during August, before the pair surged.
I turn from neutral to bearish on EUR/USD
The Draghi rally is fading away, as the other side of Draghi’s words begins biting: the real economy is still not out of the woods. Instead of positive contagion from the improving situation in bond markets moving to the real economy, a significant slowdown (or recession) in Germany, weighs heavily on the pair. Without a weaker euro, it will be hard to see the economies recover. This is well known to officials.
In the US, economic signs are mostly positive. We cannot expect to see any change in Fed policy anytime soon, but the continued improvement and the absence of a recession support the dollar.
More fresh technical analysis: EUR/USD Struggles to Approach 1.3500 by James Chen.
If you have interest in 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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