EUR/USD Forecast July 22-26

EUR/USD remained stable, ignoring some euro-zone issues and enjoying some dollar weakness. Flash Manufacturing and Services PMIs and German Ifo Business Climate are the main events on our calendar. Here is an outlook on the important events to watch and an updated technical analysis for EUR/USD.

German ZEW dropped 2.2 points to 36.3, missing economists’ expectations. Weak German industrial production and foreign trade contributed to this fall. Furthermore, trouble from the east threaten to jeopardize Germany’s economic recovery; The slowdown in China, can hinder Germany’s growth prospects for the coming months. In addition, jobs figures were positive but housing was weak. The taper question remains open after Bernanke didn’t say anything new. What is the next move for the pair? Let’s start Updates:

• The euro began the week with a small rise against the US dollar, but not against the pound.  
• Analysis:  EURUSD questions for this week
• US existing home sales disappoint  and fall to 5.08 million (annualized). This triggers  another wave of dollar dropping. EUR/USD rises above 1.32.
• More:  EUR/GBP drifting lower in a downtrend parallel channel
• EUR/USD is hesitating around 1.32 ahead of the release of consumer confidence.
• Technical analysis: EUR/USD set to extend gains.
• EUR/USD daily:  Capped by 1.32 despite dollar’s weakness
• Opinion: Sell EUR/USD above 1.32.
• Update: EUR/USD is attempting to break above the narrowing triangle and has already reached 1.3230. The dollar is weaker.
• Video:  Where next for EUR/USD, EUR/GBP, GBP/USD, AUD/USD and USD/CAD
• German PMIs both positive – EUR/USD breaks to new highs, approaches important resistance. The pair reached a peak of 1.3254 before retreating under 1.3250, which serves as important resistance. Also French PMIs beat expectations.
• Fresh technical analysis: EUR/USD  Bullish, Pressure Builds On The Upside
• US New home sales reach 497K – the highest in 5 years – EUR/USD drops towards 1.32.
• EUR/USD remains above 1.32 as the IFO figure comes at 106.2 – within expectations. M3 money supply disappoints at 2.3%.
• EUR/USD July 25 – Little Change as German Business Climate Hits Estimate
• US jobless claims are within expectations, durable goods orders exceed them. The dollar strengthens only temporarily.
• Opinion:  Worsening Eurozone debt levels could see September Euro sell-off
• Forex Analysis: EUR/USD Furthers Advance to Hit Key Resistance
• The US dollar is sold off towards the end of the week, with no exception. EUR/USD challenged 1.33 before falling. It holds on above 1.32.
• EURUSD: Prices to go up before falling – Elliott Wave Analysis
• USD extends sell off despite positive data – EUR/USD edges up but is unable to conquer the 1.33 line.

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

1. Consumer Confidence: Tuesday, 14:00. Euro-zone  consumer sentiment  edged up more than expected in June, advancing to minus 18.8 from minus 21.9 in May, the highest rise in 22 months. Despite the negative reading, this rise is another good sign that eh European economy is headed towards recovery. Another rise to -18 is expected this time.
2. Flash Manufacturing and services PMIs: Wednesday. PMI data released last month indicates the slowdown in the euro zone economy eased in light of a 15-month-high increase in the EU manufacturing activity, rising to 48.7 from 48.3 in May. The Eurozone services sector also improved to 48.6 from 47.2 in May. German manufacturing sector declined unexpectedly to 48.7 from 49.4 in May but showed expansion in the services sector reaching 51.3.  Even French factory output was better than projected with a 48.3 reading in manufacturing output compared to 46.4 in May and a rise to 46.5 in services from44.3 in the previous month. All in all, slower declines were registered across the manufacturing and services sectors. Economists see further improvement among the EU members this time: French Manufacturing-48.9, French Services-47.7, German Manufacturing-49.3, German Services-50.9, Euro-zone Manufacturing-49.4, Euro-zone-Services-48.9.
3.  Italian Retail Sales: Wednesday, 8:00. Retail sales in Italy declined 0.1% in April, following a 0.3% fall in April, a bit worse than the flat reading predicted by analysts.  This was the eighth consecutive decline in purchases leading to a 2.9 % annual reduction, indicating the near-term prospects in retail sales continue to look pretty grim. A rise of 0.4% is forecast now.
4. Spanish Unemployment Rate: Thursday, 7:00. The Euro-zone debt crisis continues to burden Spanish economy and labor market. The number of unemployed increased to 27.2% crossing the 6 million barrier in the first quarter, following 26.0% in the fourth quarter of 2012. No change is expected now. Recently, Spain reported a big drop in jobless claims, but this was mostly a “summer effect“.
5. German Ifo Business Climate: Thursday, 8:00. German Business Confidence recovered ground for the second month in June rising to 105.9 from 105.7 in May, due to positive economic data registered in the last weeks. The rise was broadly in line with expectations. The Bundesbank said economic growth will accelerate in the second quarter. However a slowdown in China may hinder recovery. A further rise to 106.3 is anticipated.
6. M3 Money Supply: Thursday, 8:00. The euro zone’s M3 money supply increased in line with expectations in May, rising 2.9% following a 3.2% gain in the previous month. Loans to private sector fell 1.1% annually last month, compared to expectations for a 0.9% drop, after falling 0.9% in April.  An increase of 3.0% is forecasted now.
7. Belgium NBB Business Climate: Thursday, 13:00. Belgian  business  confidence declined unexpectedly in June, reaching -12.8 from -12.4 in May as business leaders became more pessimistic about financial prospects in the coming months. Belgium, the euro zone’s sixth-biggest  economy, marked a fourth consecutive quarter of contraction. However business leaders in the volatile trade sector, were less negative about employment and demand expectations, allowing sentiment to edge up after four months of decline.   A rise to -11.2 is predicted this time.

*All times are GMT

EUR/USD Technical Analysis

Euro/dollar began the week by trading in the 1.30 to 1.31 range (discussed last week). It then made a move higher and peaked just under 1.3175. The pair remained in a higher range towards the end of the week, but the moves were quite limited.

Technical lines from top to bottom:

The round line of  1.34  served in both directions when the pair traded in higher ground. The pair temporarily breached 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. 1.3250 capped the pair back in May and is now somewhat less reachable.

1.3175 capped the pair during July 2013 and works as another line of defense for any upwards moves .1.3100 is worked as temporary resistance in December 2012 and is becoming more important once again, after capping a recovery attempt in June and then in July. It is followed by 1.3050, which proved be strong support in May 2013, defending the round number in more than one occasion, but it is less significant now.

The very round  1.30  line  was a tough line of resistance. 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. 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 becoming more important, as a clear separator of ranges. 1.2840 worked as a cushion for the pair during May 2013.

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 and then in July.

This is followed by the round number of 1.27, which is a minor line. 1.2660 follows closely. This was the low in November 2012 and where the second uptrend support begins. The last line for now is 1.26, which capped the pair back in early September.

False break of long term uptrend support

EUR/USD made a significant dive below downtrend support, but this lasted only a few hours. From there (and from 1.2750) the pair shot higher. This line is still worth noting.

I am bearish on EUR/USD

After  “injecting a downwards bias”, the ECB didn’t wait too much and also announced looser collateral rules. This activity shows that the ECB is worried, and it has good reasons. Greece could be suffering from a funding gap as the troika might not not last too long. Portugal hasn’t resolved its crisis and pressure is mounting  on the Spanish PM to resign due to allegations of receiving illegal funds. Even the locomotive, Germany, can really ride on without European or Chinese demand.

In the US, growth remains, even if slower than expected. And, as long as jobs data is OK, the taper caper is in place, and set to support the dollar.

Different opinions:

• EUR/USD Could Retest 1.3220 – Elliott Wave Forecast
• Falling inflation could push QE tapering towards late 2013  – Simon Smith

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