EUR/USD drifted around and edged higher as markets tried getting back to normal. Will the pair choose a new direction now? The ECB’s rate decision stands out as the big event of the week but certainly not the only one. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.
The end of the political uncertainty in the UK cheered also the euro and helped it advance. Inflation figures came out as expected in the euro-zone and we still do not have a resolution to the issues in Italian banks. In the US, retail sales look good and other figures were good enough, but political events grabbed the headlines.
[do action=”autoupdate” tag=”EURUSDUpdate”/]EUR/USD daily chart with support and resistance lines on it. Click to enlarge:
- German ZEW Economic Sentiment: This survey has shown a jump in business sentiment in June, but that was pre-Brexit. From the level of 19.2 we could see a fall for the fresh report for July to 8.2 points. A drop to negative ground cannot be ruled out. The all European figure stood on 20.2 points and is predicted to slide to 12.3 points.
- German PPI: Wednesday, 6:00. The largest country in the euro-zone saw producer prices rising by 0.4% m/m back in May. A rise of 0.2% is expected now.
- Current Account: Wednesday, 8:00. Thanks mostly to German exports, the euro-area’s current account is positive. The surplus was exceptionally wide in April: 36.2 billion euros. A return to previous levels could be seen in May: 24.9 billion.
- Consumer Confidence: Wednesday, 14:00. This official survey by Eurostat remained stable at -7 points back in June. Yet again, this was pre-Brexit. It will be interesting to see if confidence further slides in negative ground. -8 is expected.
- Rate Decision: Thursday, 11:45, press conference at 12:30. In the June meeting, the ECB detailed on its corporate bond buying scheme and also the new TLTROs but did not change policy. Also now, the main lending rate is expected to remain unchanged at 0%, the deposit rate at -0.4% and the QE program at 80 billion per month. Risks from Brexit and the ongoing low inflation trouble the ECB. Also its QE program could run into trouble with less eligible assets to buy. With the rush to safe haven assets, many bonds are deep in negative territory. Has the ECB run out of assets to buy? This will be one of the main questions. Another topic will be the trouble in Italian banks. No new forecasts are released this time and the ECB is likely to refrain from any big statements. However, they do want a lower exchange rate and this could result in leaving the door open for more stimulus in the future.
- Flash PMIs: Friday morning: 7:00 for France, 7:30 for Germany and 8:00 for the whole euro-zone. These are preliminary numbers for July and they already reflect Brexit risks. According to Markit, both of France’s sector were in contraction territory in June: 48.3 for manufacturing. A score of 48.1 is predicted now. Services saw 49.9 and 49.6 is on the cards now. 50 is the threshold between contraction and expansion. Germany had better outcome with 54.5 in manufacturing with a drop to 53.6 likely now. 53.7 in services back in June will likely be followed by 53.3 points now. The whole euro-zone saw 52.8 for both. Manufacturing is set to slide to 52.1 and services to 52.3 points.
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar was relatively stable, trading above 1.1070 (mentioned last week).
Technical lines from top to bottom:
1.1535 is a stepping stone as seen in May 2016 and also beforehand. It is followed by the very round level of 1.15.
1.1460 was a key resistance line in 2015 and 1000 above the multi-year lows. 1.1410 capped the pair in early June. 1.1375 worked as resistance in February and as support in May 2016.
1.1335 worked as the lower bound of a higher range and then capped recovery attempts in May. 1.1230 capped the pair after the fall in May and works as resistance.
1.1175 was the low point in the mid-May fall. 1.1140 cushioned the pair in October. 1.1070 served as a clear separator of ranges during February and also beforehand.
1.10 is a round number and significant resistance. 1.0905 is the swing low seen in June and serves as weak support. 1.0825 worked as support in early March 2015 and should also be watched. This is now a triple bottom.
The post-Draghi low 1.0780 replaces 1.08 as support. 1.0710 is the next support line on the chart after temporarily capping the pair in April 2015.
Further below, the 2016 low of 1.0520 and the 2015 low of 1.0460 provide further support.
I remain bearish on EUR/USD
The euro-zone troubles are far from over and the ECB does not want a higher exchange rate. While no new measures are on the cards, a gloomy post-Brexit Draghi could hit the euro, as well as the PMIs.
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