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EUR/USD Forecast – Jan 28-Feb 1

EUR/USD finally broke out of range and challenged new highs, as signs of improvement from Germany underpinned the single currency. German retail sales, Spanish GDP, German employment data and many more events are on our list this week. Here is an outlook on the main market-movers and an updated technical analysis for EUR/USD.

Last week, Flash PMIs painted a mixed picture  but the markets preferred focusing on the better German figures than anything else. In addition, the news that some euro-zone banks will repay part of the LTRO loans is also a sign of confidence, and it also draws out money from the system. In the US, while jobless claims remain at 5 year lows, housing seems to be losing some steam. Will the pair break critical resistance now?

Updates: Eurozone M3 Money Supply was a disappointment, posting a gain of 3.3%. The estimate stood at 3.9%. Eurozone Private Loans declined by 0.7%, matching the forecast. GfK German Consumer Climate climbed to 5.8 points, matching the market estimate. German Import Prices looked weak, posting their fourth straight decline. The indicator fell by 0.5%, well below the estimate of -0.1%.  EUR/USD continues to trade in the mid-1.34 range, as the pair was trading at 1.3444. Spanish Flash GDP dropped -0.7%. The estimate stood at -0.6%. Eurozone Retail PMI rose slightly, to 45.9 points. Italian 10-year bonds fetched an average yield of 4.17%. This was lower than the yield at the previous auction, which stood at 4.48%. German 30-year bonds posted an average yield of 2.45%, higher than the previous yield of 2.34%. Deutsche Bundesbank President Jens Weidmann delivered remarks in Berlin. German Retail Sales disappointed, declining 1.7%. The estimate stood at 0.1%. German Preliminary CPI declined 0.5%, matching the forecast. French Consumer Spending posted a flat 0.0%, falling below the 0.3 estimate. German Unemployment Change was outstanding, declining by 16 thousand. This crushed the estimate of a gain of 9 thousand. The euro is showing little change, as EUR/USD was trading at 1.3562.

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

EURUSD Technical Analysis January 28 February 1 2013

  1. M3 Money Supply: Monday, 9:00. Annual growth in domestic currency in circulation weakened slightly in the  euro zone  to 3.8% in November, in line with predictions, following 3.9% rise in the previous month. Loans to the private sector dropped 0.8% from a year ago, worse than the 0.5% fall expected by economists. A rise of 3.9% is expected now.
  2. GfK German Consumer Climate: Tuesday, 7:00. GfK Group released German consumer sentiment reading for December showing a small decline to 5.6 from 5.8 in November, indicating German consumer sentiment is likely to remain subdued throughout 2013. The slowdown in German economic activity reduced consumer spending due to increased pessimism among households.  A rise to 5.8 is forecasted.
  3. Spanish Flash GDP: Wednesday, 8:00.  Spanish GDP declined by 0.3% in the third quarter, a bit better than the 0.4% drop anticipated by economists, but marking the fourth consecutive contraction. Spain will be obliged to ask for EU bailout, unless economic conditions improve. A contraction of 0.6% is anticipated. Spain
  4. Retail PMI: Wednesday, 9:10. Eurozone retail sales dropped sharply in December to 44.5 from 45.8 in the prior month, signaling an expensive decline in Germany, France and Italy. Retailers in the euro area reduced their purchases of new stock in December, causing a sharp drop in at retailers’ warehouse stocks. This was the worst year for Eurozone retailers since the survey started in 2004.
  5. German CPI: Thursday. Inflation in Germany, rose by 0.9% in December, following a 0.1% decline in November. The increase occurred mainly due to seasonal factors. The annual inflation average reached 2.0% with accordance to the ECB measure for price stability.
  6. German Retail Sales: Mon-Sat. Retail sales improved considerably in November with a 1.2% climb, following 1.3% contraction in September, topping forecasts of a 0.9% rise. However November’s rebound was only the second rise in five months in which sales were sluggish. A minor climb of 0.1% is forecasted.
  7. French Consumer Spending: Thursday, 7:45. French consumer spending increased by 0.2% in November, beating expectations for a flat reading, rebounding from a 0.1% contraction. The main reason for this rise was an increase in housing furnishings and energy, while food and manufactured goods declined.  An increase of 0.3% is anticipated.
  8. German Unemployment Change: Thursday, 8:55. German unemployment rate  climbed less than expected in December, rising 3,000 after a 5,000 increase in November. Analysts expected an increase of 11,000. Unemployment rate was maintained at 6.9%, near the bottom since  decades. A rise in business confidence and growing demand outside the Eurozone, boosted factory orders and exports,  re positioning  Germany as the Eurozone number one economy. A rise of 9,000 is expected now.
  9. Manufacturing PMI’s: Friday. The Spanish manufacturing sector worsened in December, dropped to 44.6 from 45.3 in November amid a continuous decline in production and increased job cuts. The weak state of Spanish economy drove leading manufacturers to lower their production during the month. Nevertheless  the number of new orders increased in December, in an attempt to concentrate on external markets. Analysts are pessimistic in regard to possible improvement in the sector during 2013. Likewise Italy’s manufacturing sector continued to decline in December, reaching 46.7, from 45.1 in November, a small improvement but still in contraction. The Eurozone manufacturing sector headed downhill in the fourth quarter of 2012 registering 46.1 in December from November’s 46.2, except for Ireland showing growth. German industry cannot maintain elevated production at the current EU economic state. Spain 45.5, Italian 47.6, EU A rise to 47.5 is expected.
  10. CPI Flash Estimate: Friday, 10:00. Euro-zone inflation remained 2.2% in December according to an initial consumer prices estimate by Eurostat. CPI was higher than the 2.1% forecasted. In case inflation remains subdued the ECB may decide to cut rates to spur growth in 2013. The same inflation rate of 2.25  is expected this time.
  11. Unemployment Rate: Friday, 10:00. The unemployment rate across the Eurozone continued to increase, reaching a new all-time high of 11.8% in November, following 1.7% in October. Spain, recorded the highest unemployment rate of 26.6%, followed by Greece with 20% unemployment rate. More than 26 million people are out of work across the EU. However, European Commission President Jose Manuel Barroso believes the worst was over. An increase to 11.9% is predicted.

*All times are GMT.

EUR/USD Technical Analysis

€/$ began the week with a drop towards the 1.3255 line (mentioned last week). It then returned back up, but was capped by the 1.34 line. This range trading was eventually broken, and the pair peaked at 1.3476 before retreating a bit.

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 2012 and provides a significant backstop to 1.34. Breaking above this line will send the pair to levels last seen in late 2011.

1.34 was a stubborn cap during the spring of 2012 and continued its stubborn stance in January 2013 – it is a key line, now to the downside.  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.

Uptrend channel

As seen in the black lines on the chart, the pair is trading in an uptrend channel since mid-December. EUR/USD is now close to the upper line. Could it bounce or break?

I am bearish on EUR/USD

The growing talk about currency wars from Europe could weigh on the euro – also Europe prefers a weaker currency, not only Japan. In addition, the economic situation in Europe remains problematic, and we’ll see it once again with the unemployment numbers. On the other hand, lower bond yields and signs that Germany is still strong support the euro, but not enough.

In the US, we will have a Fed decision that isn’t likely to provide big news after the announcement of QE4, thus not supplying ammunition for dollar bears The Non-Farm Payrolls are probably going to be rather dollar friendly as well, 1.3480 is a key line.

More fresh technical analysis: EUR/USD Consolidates within Tight Range Pattern    by James Chen.

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Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.