EUR/USD moved lower on weak German data and concern over growth prospects for the eurozone. Investors will be keeping an eye on German ZEW Economic Sentiment and manufacturing and services PMIs. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.
Germany data is viewed as a bellwether for eurozone, so weakness in Germany is raising concerns. Industrial Production posted its sharpest decline in more than four years, and the German Wholesale Price Index was also sharply lower.
Growth forecasts for the eurozone have been lowered, as the global trade war has taken a bite out of the export and manufacturing sectors. Nervous investors showed a preference for the safety of the greenback, at the expense of the U.S. dollar. The German economy is expected to show gains in Q4, but weak economic conditions in the eurozone has some analysts saying the bloc could be hit with a mild recession if the U.S economy slows down.
EUR/USD daily chart with support and resistance lines on it. Click to enlarge:
- German PPI: Monday, 7:00. Producer Prices feed into consumer ones. German PPI rose by 0.1% in November, its weakest gain since March. The markets are braced for a decline of 0.1% in December.
- German ZEW Economic Sentiment: Tuesday, 10:00. The 300-strong survey of German analysts and institutional investors continues to point to pessimism, with nine successive declines. The indicator improved to -17.5 in December, but is expected to weaken to -18.8 points in January. The eurozone indicator has also been marked by declines and the January estimate stands at -20.1 points.
- Flash PMI’s: Friday, 8:15 for France, 8:30 for Germany, and 9:00 for the euro-zone. Markit’s forward-looking surveys softened in December. We will see an improvement in January? France had a score of 49.7 points in its Manufacturing PMI in December, missing the 50-point threshold that separates expansion from contraction. A score of 50.0 is expected. The services sector dropped sharply, coming in at 49.6 points. An improvement to 50.6 is expected. German manufacturing PMI ticked down to 51.5, and is expected to come in at 51.6 points. Germany’s services PMI dropped to 52.5 last month and 52.2 is expected. The euro-zone as a whole had a score for manufacturing and services PMIs of 51.4 points with 51.5 now projected.
- ECB rate decision: Thursday, 12:45. Thursday: rate decision at 12:45, press conference at 13:30. The European Central Bank ended its bond-buying scheme in December. Analysts had talked of a rate hike in Q3, but current forecasts are predicting that the ECB won’t act before the fourth quarter, due to weak eurozone numbers. The German, French and Italian economies have been weighed down by the global trade war, core inflation is not going anywhere fast, and forward-looking PMI’s are stagnant. Draghi’s tone in the press conference will be critical to the reaction of the euro.
- German Ifo Business Climate: Friday, 9:00. IFO is Germany’s No. 1 Think Tank. The Business Climate score has slowed down for four straight months, falling to 101.0 and missing the estimate. The negative trend is expected to continue, with an estimate of 100.7 points.
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar was under pressure all week, and the pair broke through support at 1.1400 (mentioned last week).
Technical lines from top to bottom:
We start with resistance at 1.1747,which was a cap in August.
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 post breakout peak in January. 1.1500 is a very round level and also capped the pair’s advance in early November.
1.1475 was a high point in mid-November. The round number of 1.1400 was a pivotal line in the range.
1.1345 provided support in December and the round level of 1.300 was a swing low around the same time.
1.1270 served as support late in November and is now a double bottom. 1.1215 is the low point it reached in November.
1.1110 was a low point back in June. 1.1025 was a stubborn cap back in May 2017.
I remain bearish on EUR/USD
With the largest economies in the eurozone facing headwinds and the ECB a long way off from a rate hike, the euro has little to offer investors. The U.S. shutdown has started to weigh on the economy, but lawmakers are under increasing pressure to reach a compromise, which could provide the dollar with a short boost.
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