EUR/USD had a nice run in the second week of 2017, riding on the greenback’s weakness. The ECB rate decision is clearly the main event on the agenda for the upcoming week Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.
Business confidence is rising rapidly according to Sentix while the unemployment rate remained unchanged at 9.8%. Good news also came from the industrial output data. Yet the main reason for the pair’s surge has been USD weakness. Donald Trump disappointed markets as his economic messages focused on bashing companies while not mentioning fiscal stimulus, the stimulus for the dollar since his election.
EUR/USD daily graph with support and resistance lines on it. Click to enlarge:
Trade Balance: Monday, 10:00. The euro-zone enjoys a wide trade balance surplus thanks to German exports. In October, the surplus squeezed to 19.7 billion, but for November, there is a good chance it will grow, thanks to a widening in Germany’s surplus. 23.2 billion is expected now.
German ZEW Economic Sentiment: Tuesday, 10:00. Tuesday, 10:00. ZEW releases its survey of businesses early in the month but is still overshadowed by IFO. Back in December, the headline figure showed 13.8 points, in positive territory, but unchanged. An increase to 18.9 points is predicted. The all-European number stood at 18.1 points and is now predicted to rise to 24.2 points.
German CPI (final): Wednesday, 7:00. The initial read of German inflation for December surprised with a big bump to the upside, 1.7% y/y. The initial read is usually confirmed by the final one.
CPI (final): Wednesday, 10:00. Euro-zone rose to 1.1% y/y, mostly thanks to the diminishing effect of low oil prices. Also the core figure beat expectations by rising to 0.9% after stubbornly staying at 0.8%. The flash print will probably be confirmed, but revisions are not uncommon.
Current Account: Thursday, 9:00. Similar to the trade balance, also this wider measure of the balance of payments is positive. A wide surplus of 28.4 was recorded in October. A wider surplus of 29.3 billion is on the cards.
Rate decision: Thursday, the decision is at 12:45, press conference at 13:30. The European Central Bank will most probably leave all its policy measures unchanged in the January meeting. Back in December, Mario Draghi introduced changes to the bond-buying scheme. The program will be reduced from 80 to 60 billion euros per month from April but will run at least until the end of 2017. In addition, the Bank will now be able to buy bonds with yields below the negative deposit rate. They also updated economic forecasts, and inflation is not expected to rise to sky-high levels anytime soon. The bottom line was a fall in the euro on Draghi’s general dovishness This time, the ECB does not publish new forecasts and is also expected to let the new measures run at least part of their course before making any adjustments. What could matter is the tone of Draghi: will he show more confidence on inflation? Or will he express worries? While 2017 may be the year of politicians and elections, the central bank still has a central role in moving the currency.
German PPI: Friday, 7:00. The Producer Price Index has beat expectations in the past two months, rising by 0.3% in November. These prices eventually feed into consumer prices. We now get the figures for December. An increase of 0.4% is predicted.
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar was looking for a new direction, floating above the 1.0520 level mentioned last week. It then surged, rising towards 1.07 before settling.
Technical lines from top to bottom:
1.0710 is the upper resistance line on the chart after temporarily capping the pair in April 2015. 1.0670 is a high level reached in December, after as the pair attempted a recovery.
The early high of January, at 1.0615 is the next line. 1.0570 was a stepping stone on the way down.
Further below, the early 2016 low of 1.0520 and the 2015 low of 1.0460 are seen. 1.0460 seems to carry more weight.
Even lower, there are two significant barriers on the way to parity. The 1.0340 level was the low of 2003 before the pair advanced to higher ground. The 101.50 level was a peak seen in 2002, on the first attempt of the pair to break above parity.
And then, there is EUR/USD parity.
I turn from neutral to bearish on EUR/USD
Draghi is likely to drag the euro down once again with a dearth of optimism about battling inflation. In the US, the inauguration of Trump at the end of the week could raise expectations for fiscal stimulus, boosting the greenback.