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EUR/USD Forecast Oct. 27-31

EUR/USD  had an interesting week, amid speculation about central bank action on both sides of the Atlantic. A very busy week awaits us: the stress test results, Germany’s IFO survey and the all important inflation figures are set to dominate. Here is an outlook on the highlights of this week and an updated technical analysis for EUR/USD.

Speculation that the ECB would begin buying corporate bonds hurt the euro and countered a continued USD correction. German PMIs gave a boost to the common currency, but France is not playing along. Worries about growth are certainly present. In the US, data was generally positive, with jobless claims and inflation holding on. Does the price of the pair already  reflect the news or are we set for the next  leg lower?

[do action=”autoupdate” tag=”EURUSDUpdate”/]

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

EURUSD Technical graph October 27 31 2014 euro dollar fundamental sentiment for currency trading

  1. Bank Stress Test Results: Sunday, 11:00, before markets open. The ECB is assuming its  supervisory role and it conducted a comprehensive Asset Quality Review (AQR) to euro-zone banks. The results could cause worries about specific banks. More importantly, the tests need to be seen as serious enough to prevent the next crisis,  but not too harsh to  cripple banks and future growth. The timing of the publication should allow enough time for markets to digest the full report. Basically, if no big banks fail, the euro will move on to the normal topics. Update:  ECB stress tests results show further action needed from banks
  2. German Ifo Business Climate: Monday, 9:00. Germany’s No. 1 think-tank has shown a consistent deterioration in business confidence in recent months. The other survey, ZEW, already printed a negative result for October, for the first time since 2012. Another slide from last month’s 104.7 points is expected in October: 104.6 points.
  3. M3 Money Supply: Monday, 9:00. The ECB eyes the  amount of money in circulation as a measure of monetary activity. A y/y rise of 2% was reported in August, and a slightly stronger number is expected for September: 2.2%..
  4. Private Loans; Monday, 9:00. Private loans  been contracting for many months, and this is certainly a cause of worry. From a squeeze of 1.5% seen in August, a smaller contraction is expected now, 1.3%, encouraging the ECB that some of its monetary action is being transmitted to the markets.
  5. German Flash CPI: Thursday: states release data during the morning and the  all-German number is at 13:00.  Prices remained flat in Germany in September, with a very moderate rise of 0.8% y/y. While this is above the euro-area average, it is far from convincing. The preliminary figure for October is expected to be similar.
  6. Spanish Flash CPI: Thursday, 8:00. In the zone’s fourth largest economy, there is already outright deflation. A y/y fall of 0.2% was recorded for Spanish CPI. A smaller  drop  is expected now: 0.1%.
  7. Spanish Flash GDP: Thursday, 8:00. Contrary to most of the euro-zone, Spain is enjoying  some growth. The quarterly growth rate stood on 0.6% in Q2 2014. We already got hints from the Luis de Guindos that growth is expected to remain solid. A somewhat lower quarterly growth rate is expected for Q3, but y/y, an above average growth rate of 1.6% is expected by the Bank of Spain and the official result will likely be very similar.
  8. German Unemployment Change: Thursday, 8:55. The number of unemployed in Germany rose by 12K in August, and added to the gloomy picture for the zone’s largest economy. A smaller growth in unemployed  is expected now: 4K.
  9. French Consumer Spending: Friday, 7:45. The euro-zone’s second largest economy enjoyed a 0.7% rise in consumer spending in August, erasing the previous month’s fall of the same scale. A small decline is likely now.
  10. Italian Monthly Unemployment Rate: Friday, 9:00. The EZ’s third largest economy suffers from the worse than average unemployment: 12.3% in comparison with the 11.5% average for the euro-zone. It is far lower than Spain’s number, at 23.7%, but this isn’t encouraging.
  11. CPI Flash Estimate: Friday, 10:00. Euro-zone inflation is very low and already triggered a wide array  of measures from the ECB. Headline CPI stands at 0.4% in the final read for September, and could slide lower together with the falling oil prices. Core inflation stands at 0.7% and could remain unchanged now. This preliminary data for October is critical for Draghi’s sentiment on November 6th.
  12. Italian CPI: Friday, 10:00. Italy has a significant contribution to euro-zone inflation and while overshadowed by the simultaneous release of the euro-zone CPI, this will also be watched. After a fall of 0.3% in September, another slide is expected due to oil prices.
  13. Unemployment Rate: Friday, 10:00. The unemployment rate  in the euro-zone stands on 11.5%. While currently not high on the ECB’s agenda, this number is a reminder of why inflation is so low: not enough people are working, making money and consuming.

* All times are GMT

EUR/USD Technical Analysis

Euro/dollar started the week with a climb towards 1.2860 (mentioned last week). But from there, it began declining down and down. The 1.2660 was fought upon.

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

Technical lines from top to bottom:

We begin from higher ground this time. 1.33 was a swing low earlier in the year and works as distant resistance at the moment.  1.31 worked in both direction for quite some time.

1.3050 serves as  a minor line before the key line:  1.30, which is more than a round number. The pair bounced off this line before making the big fall.

Below  1.30, we find 1.2960  which capped the pair’s recovery attempts after it fell to lower ground. The  1.2920 level was the initial low and  should be watched as well.

1.2860 a place where the pair stopped on the way down in September, and despite the spike, remains of importance.  The  round number of 1.28, which also worked as support at around the same period of time is  weakening, but should still be watched.

1.2750 was a double bottom back in July 2013. This double bottom was breached and immediately worked as resistance. 1.27 is a round number and also worked as  resistance to a recovery attempt.

This is followed by 1.2660 – a key line to the downside, which  marks the beginning of long term uptrend support. Below, 1.2570 is the initial low seen in October and now a line of resistance.

The next line is critical: of 1.25, which is USD/EUR at 0.80. The pair flirted with this line. This is key support.

Even lower, 1.2445 was a swing high in August 2012 and it is followed by 1.2385, which was stubborn resistance around the same time.

1.2250 served as support several times in that summer, and 1.2170 was the “shoulder” in the inverse H&S pattern around the same time. The last line is the 2012 low of 1.2040.

Here is  closer look at recent movements via the hourly chart:

EURUSD October 27 31 2014 1 hour chart euro dollar fundamental sentiment for currency trading Technical graph

I turn from neutral to bearish  on  EUR/USD

The euro-zone continues suffering from very low inflation, high unemployment and a central bank that is ready to do more and more. The only point of light of late was a better than expected German PMI, but these PMIs did not predict the German contraction in Q2. The influx of data will likely serve as a stark reminder, weighing on the euro.

In the US, the positive data and not-dovish talk from the Fed doves mean that chances of extended QE are very low. Together with the first of GDP from the US, we  will probably get a reminder that the US is going in the right direction, even if the pace is slow.

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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.