EUR/USD failed in another attempt to recover and hit 6-month lows and is already more than 900 pips off the highs. Will it find a bottom anytime soon? Preliminary inflation figures for May stand out as we turn a page into June. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.
Italy was at the center of European attention. Giuseppe Conte, which has no political experience, will be Prime Minister. The government’s program has been tamed, but will likely result in a high deficit, worrying markets. Spanish politics joined the list of worries. Spain’s opposition tabled a no-confidence motion after the ruling PP party was convicted of corruption. Euro flash PMI data came out mostly below expectations and implies that the slowdown extends well into the second quarter. The ECB Meeting Minutes reiterated the same cautious messages seen in the rate decision. In the US, the Fed minutes showed that the Fed will allow for somewhat higher inflation, but they cemented the June rate hike. The US dollar also enjoyed the risk-off sentiment that is a result of trade fears. Trump’s decision to cancel the meeting with Kim Jong-un weighed on markets but had little impact on EUR/USD.
EUR/USD daily chart with support and resistance lines on it. Click to enlarge:
- Monetary data: Tuesday, 8:00. The significant slowdown in M3 Money Supply, or money in circulation, must be a worry tot he European Central Bank. It slowed down to 3.7% y/y in March. On the other hand, Private Loans accelerated to 3%. We will now get the figures for April. M3 Money Supply is expected to accelerate to 3.9% y/y and private loans to 3.2% this time.
- German Retail Sales: Wednesday, 6:00. One of the more disappointing data points of late was retail sales in Germany. After a drop of 0.6% in March, a bounce of 0.5% is predicted for April. There are some tentative signs of a Spring pickup, and this figure would need to rise as well.
- German CPI: Wednesday, during the morning, and the all-German figure at 12:00. Germany is Europe’s largest economy and changes in its inflation has a significant impact on the whole euro-zone. Prices remained flat in April, falling short of expectations and leading to a weak final read of 1.2% y/y in the euro-zone. We will now get the preliminary figures for May. A monthly rise of 0.3% is on the cards this time.
- French Consumer Spending: Wednesday, 6:45. France, the eurozone’s second-largest economy, has seen slow growth in consumer spending in March: only 0.1%. A rise of 0.2% is on the cards this time.
- French GDP: Wednesday, 6:45. The initial read for French GDP growth in the first quarter of 2018 showed a modest rate of 0.3%. The update is expected to confirm the early estimates.
- Spanish CPI: Wednesday, 7:00. Spain, the zone’s fourth-largest economy, saw a further deceleration in y/y growth in April: 1.1%. The figure feeds into the all-European data. A significant jump to 1.7% is forecast for the preliminary read for May.
- German Unemployment Change: Wednesday, 7:55. Germany’s strong economy sees a persistent drop in the number of the unemployed. A drop of 7,000 was recorded in May. The data for April will also likely show a slide in the number of the jobless. A fall of 10K is expected.
- French CPI: Thursday, 6:45. France saw prices rise by 0.1% m/m, faster than Germany, but still very slow. The preliminary figures for May will serve as the last hint before the all-European data. Another rise of 0.2% is expected.
- Inflation data: Thursday, 9:00. As with other figures, also inflation decelerated in the euro area, with 1.2% on the headline and 0.7% on the core. The early Easter holiday probably contributed to the dip, so a slight pickup may be seen in this preliminary estimate for May. If prices remain low, the ECB could take its time with ending the QE program and raising rates. A bounce higher is on the cards: 1.6% in headline inflation and 1% in core inflation.
- Unemployment Rate: Thursday, 9:00. The unemployment rate in the 19-country bloc has been dropping steadily but got stuck at 8.5% in March. A similar number is likely in April. The rate was above 12% in 2013. A drop to 8.4% is on the cards.
- Manufacturing PMI: Friday morning: Spain at 7:15, Italy at 7:45, final French figure at 7:50, final German number at 7:55 and final euro-zone measure at 8:00. Markit’s forward-looking purchasing managers’ index for the manufacturing sector stood at 54.4 points in Spain in April, above the 50-point threshold separating expansion from contraction but reflecting not-so-fast growth. A minor drop to 54.2 is expected. Italy had a level of 53.5 points. A slide to 53 points is projected. The preliminary figure for France for May showed a score of 55.1, Germany had 56.8, and the whole euro-zone had 55.5 points. Expectations are for a confirmation of the flash numbers, but revisions are quite common.
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar initially challenged the 1.1820 level (mentioned last week) but then collapsed and fell below 1.17.
Technical lines from top to bottom:
1.2155 was a low point in early March and the last line before 1.2090, the 2017 peak. 1.2060 was the low point in late April and it is the last barrier before the round number of 1.20.
The round number of 1.19 is also notable as a pivotal line in the range and it also temporarily held the pair back in late 2017.
Further down, the 1.1820 level was a stubborn support line in late 2017. 1.1750 is a low point recorded in mid-May.
1.1720 is a veteran line that worked in both directions, last seen in November. 1.1676 was a temporary low point in late May.
Lower, 1.1630 was a pivotal line in November and 1.1550 was the trough around that time.
I remain bearish on EUR/USD
Everything is going against EUR/USD: Italian politics, hard and soft euro-zone indicators and the restless US Dollar. The full effect of the geopolitical deterioration and the worsening of trade tensions still isn’t felt.
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