EUR/USD dropped to new lows but recovered quickly and stabilized back in the known ranges. What’s next? An important German survey and final inflation figures stand out in a week where Brexit could also have a meaningful impact on the common currency. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.
Stocks tumbled and the world’s most popular currency pair remained relatively stable most of the time. Weak US inflation figures already sent the US Dollar lower and the pair higher. In the euro-zone, Germany’s trade balance and industrial output beat expectations. Italy remained in the headlines but the euro managed to shrug it off more than in previous weeks.Updates:
EUR/USD daily chart with support and resistance lines on it. Click to enlarge:
- German Import Prices: Tuesday, 6:00. Prices of imported goods and commodities impact consumer prices. After three months of increases, imported prices disappointed in August with a drop of 0.2%. A small increase of 0.1% is on the cards for September.
- Trade Balance: Tuesday, 9:00. Germany’s high volume of exports is behind the continent’s surplus. That surplus squeezed in recent months, reaching a tough of 12.8 billion euros in July. We will now get the data for August. A surplus of 15 billion is projected.
- German ZEW Economic Sentiment: Tuesday, 9:00. The 275-strong survey improved in September, but remained at negative territory, standing at -10.6 points. A fresh deterioration is predicted now: -12.3 points. The all-European measure carries expectations for a move down from -7.2 to -9.2 points.
- Final CPI: Wednesday, 9:00. The initial inflation figures for September showed that headline inflation remains OK at 2.1% y/y but core inflation dropped to 0.9%, weighing on the euro. The final figures will likely confirm the preliminary data.
- Jens Weidmann talks: Wednesday, The President of the German central bank, the Bundesbank, will be speaking in Berlin. Until recently, Weidmann was considered a leading candidate to replace Mario Draghi at the helm of the ECB. In any case, he remains a key figure in shaping the Bank’s policy.
- German WPI: Thursday, 6:00. Wholesale prices eventually reach consumers. They climbed by 0.3% in August and are now expected to accelerate and rise by 0.4%. Rising inflation in Germany may push the ECB to a more hawkish monetary policy.
- EU Summit on Brexit: Thursday. The leaders of the European Union, which still includes the UK are convening for a planned summit, with Brexit being the main issue. Reaching a Brexit deal by this date was marked as a deadline, but that may slip. Both sides are reporting progress in talks after the Conservative Party Conference ended. The most thorny issue is that of the Irish Border, which is related to the customs arrangements. One option is to place Northern Ireland in a separate customs regime, thus creating a customs border in the Irish Sea. However, the idea is vehemently opposed by the DUP which props up the UK government in a “confidence and supply” deal. A Brexit deal would send the pound higher and the euro would also enjoy it. However, a more likely scenario is that the EU and the UK set a new deadline in November. The option of a second referendum and a no-deal Brexit are also on the cards. High volatility is likely.
- Current Account: Friday, 8:00. Similar to the narrower trade balance, the euro area enjoys a high surplus that stood at 21.3 billion euros in July. A marginally wider surplus of 21.4 billion is on the cards for August.
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar kicked off the week on the back foot and hit a new low of 1.1422. It then recovered and was capped at the 1.1615 resistance level (mentioned last week).
Technical lines from top to bottom:
1.1915 was the low point in January and remains relevant. 1.1850 was the peak on June 14th, before Draghi sent the euro down.
1.1815 was the high point in September. 1.1750 held the pair no less than four times in July and remains a powerful level.
1.1720 is a veteran line that worked in both directions and it capped the pair in mid-September. 1.1650 was a swing low in late August and is very closely followed by 1.1615 which played a pivotal role.
1.1570 was the low point as September came to an end 1.1530 supported the pair twice in August, making it an important line.
1.1460 was the low point in the initial drop in October 2018. 1.1422 was the low point in mid-October.
1.1365 temporarily cushioned the drop in EUR/USD on its way down. 1.1300 is a round number that held the pair in mid-August and also held the pair down in June 2017.
I remain bearish on EUR/USD
Italy remains a drag on the euro-zone and the USD is a safe-haven currency. The ongoing monetary divergence will likely weigh on the pair.
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