EUR/USD Outlook – February 21-25

The Euro had a choppy week, moving down and then back up. The upcoming week consists of many economic surveys and inflation indicators. Here’s an outlook for the European events, and an updated technical analysis for EUR/USD.

The issue of inflation is becoming more and more important – the ECB might hike the rates much earlier than expected – hints are already sent out. These hawkish comments come despite the very problematic Portuguese bond yields and uncertainty in Ireland.

EUR/USD chart with support and resistance lines marked. Click to enlarge:

1. Flash PMI: Monday – 8:00 in France, 8:30 in Germany and 9:00 for the whole continent. They’re divided to manufacturing and services sectors. All the purchasing managers’ indices are above the critical 50 point mark, meaning expansion, and all of them are expected to remain around the same levels seen last month. It’s worth mentioning that Germany’s figures are the best – both above 60 points – showing a fast growth pace. French manufacturing is somewhat behind.
2. German Ifo Business Climate: Monday, 9:00. The highly regarded think-tank almost always exceeds expectations and shows positive numbers in its survey of 7000 businesses. This time, the score is expected to remain unchanged at 110.3 points. Any result will rock the Euro.
3. GfK German Consumer Climate: Tuesday, 7:00. This survey of 2000 consumers is on the rise. It scored 5.7 points last month and is expected to edge up once again, to 5.8 points, showing that German consumers are upbeat.
4. NBB Business Climate: Tuesday, 14:00. Despite coming from a small country, Belgium, this is wide survey and it always moves the Euro. After jumping to 4.5 points last month, the 6000 businesses surveyed here are expected to send the number slightly lower, to 4.4 points.
5. French CPI: Wednesday, 6:30. As inflation is rising all over the world, also French CPI becomes important. After rising by 0.5% last time, a drop of 0.1% is expected now. After a comment on a rate hike from Bini Smaghi, any rise above 0.5% here will rock the Euro.
6. Industrial New Orders: Wednesday, 10:00. The total value of orders is rather volatile. Nevertheless, this indicator shakes the Euro. After a gain of 2.1% last month, the figure is expected to drop by 0.8%.
7. German Final GDP: Thursday, 7:00. Germany’s growth has slowed down after the superb second quarter. According to the initial release, the growth rate in Q4 stood on 0.4%. This will probably be confirmed now.
8. German CPI: Thursday. Each German state releases its numbers at a different time. The composite figure is expected to show a rise of 0.5% in prices, correcting the drop at the same scale last month. After PPI surprised and came out double than expected, a bigger rise won’t be a big surprise.
9. French Consumer Spending: Friday, 7:45. After two months of neat rises, the consumers in France are likely to show a squeeze of 0.7% this time.
10. M3 Money Supply: Friday, 9:00. The amount of money in circulation is also an important inflation-related indicator. Growth is expected to accelerate from 1.7% to 2.1% this time.

* All times are GMT

EUR/USD Technical Analysis

The Euro had a rough start to the week, testing the 1.3440 line mentioned last week. It then traded in a narrow range and made a leap at the end of the week, eventually closing at 1.3693, just under the 1.37 line.

Looking down, immediate support is at 1.3570, a line which worked in both directions in recent weeks, and especially as resistance in the past week. Below    a stronger line appears – 1.3440  which was a very stubborn peak in the past three months now returns to be a line of resistance.

Below this line we find 1.3334,  a peak during the summer, is a minor support line. It’s followed by 1.3267, another minor line, that worked as support a long time ago,  and is still of importance.

Lower,  important support is found at 1.3180, which provided support during December. It’s followed by 1.3080, that prevented a full during the same period of time.

Further below, 1.2970 was the bottom reached in November and is the next line. The last line for now is 1.2870, which is the lowest level in 5 months, reached only two weeks ago, before the impressive recovery. There are more lines further below, but they’re too far now.

Looking up, immediate resistance is found at 1.37 which worked in the opposite direction during October, and now switched to resistance – it stopped the pair’s advance just now.  Above, the next line is quite close – 1.3760,and it’s quite tough as well.

Moving higher, 1.3860 is a strong resistance line, the highest level this year.  Further above, 1.3950 is already a more important line, after serving as a pivotal line.

1.4030, just over the round number of 1.40, served in both directions during September and October, and also beforehand. It’s a tough line.  Above, the peak of 1.4160 is another minor line before 1.4280 that is the highest level in a year and is still in the distance.

I am bearish on EUR/USD.

The Irish elections at the end of the week, the soaring Portuguese yields, and the strengthening US economy will all remain after the dust from Bini Smaghi’s hawkish comment settles down. The dollar index remains bullish.

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.
• For the New Zealand dollar (kiwi), read the  NZD forecast.
• For USD/CAD (loonie), check out the  Canadian dollar.