EUR/USD resumed its falls, hit by a dovish Draghi and a power play by Powell. Can it reach new 2018 lows or will it bounce back up? The ECB President has several additional opportunities to move the euro, and also PMIs are of interest Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.
The European Central Bank finally announced its exit plans from the QE program: a cut of bond-buying to €15 billion between October and December and an end to purchases from 2019. However, they added a long list of conditions and most importantly, pledged to keep interest rates unchanged through the Summer of 2019. This sent the euro tumbling down quite spectacularly. In the US, the Fed took the other direction by raising interest rates and also signaling two more. In addition, Fed Chair Powell was optimistic about the economy and will hold press conferences after every meeting from 2019, potentially opening the door to an increased pace of rate increases. In the background, trade tensions have risen after the US and Canada clashed in the G’7 Summit. Later, the US imposed tariffs on China.
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EUR/USD daily chart with support and resistance lines on it. Click to enlarge:
- Mario Draghi talks Monday, 17:30, Tuesday at 8:00, and Wednesday at 1:#0 in a panel. The President of the European Central Bank will host a conference in Portugal and will make several public appearances. The most important one is on Tuesday. It will be interesting to see if Draghi repeats the dovish message he conveyed in the post-rate decision presser. Another concerned speech, perhaps this time focusing on trade, could weigh on the euro. A focus on growth could help the common currency recover.
- Current Account: Tuesday, 8:00. The euro-zone enjoys a broad current account surplus that reached 32 billion back in March. We will now get the belated data for April which is projected to show a narrower surplus of 30.3 billion.
- German PPI: Wednesday, 6:00. Producer prices eventually feed into consumer prices. Germany’s PPI increased by 0.5% in April and a rise of 0.4% is on the cards for May.
- Eurogroup Meetings: Thursday, with the ECOFIN on Friday. Finance ministers of the 19 euro-zone countries convene to discuss the economic situation and issues with various countries. This will be the first meeting after Italy and Spain formed new governments. Spain’s government is committed to a continuation, but Italy may take a different approach, challenging the budgetary restrictions. Clashes between Germany and Italy could weigh on the common currency.
- Consumer Confidence: Thursday, 14:00. The survey of around 2,300 consumers has been stable at 0 points in the past four months, neither optimistic nor pessimistic. A repeat of the same score is on the cards. While a lot of progress has been made since the dark days of the crisis, consumers are still not really optimistic.
- Flash PMI data: Friday: 7:00 for France, 7:30 for Germany, 8:00 for the euro-zone. Markit’s forward-looking manufacturing PMI for France stood at 54.4 points in the final read for May, reflecting OK growth. A drop to 54 is on the cards. The services PMI was at a similar level of 54.3 points and a repeat of the same number is expected. Germany, the largest economy in the continent, had a manufacturing PMI of 56.9, reflecting more robust growth. A slide to 56.3 is forecast. Germany’s services PMI was weaker, at 52.1 points, closer to the 50-point threshold that separates expansion and contraction. A small increase to 52.2 is on the cards. The euro-zone manufacturing sector saw a PMI of 55.5 and 55 is projected now. The services PMI stood at 53.8 points and a drop to 53.7 is on the cards for the preliminary read for June.
- Belgian NBB Business Climate: Friday, 13:00. Similar to consumer confidence, this broad survey of 6,000 businesses had a score close to 0 in recent months. After 0.2 in May, a round 0 is predicted for June.
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar had an OK start to the week and it tackled the 1.1845 level (mentioned last week) only to fall all the way down. It eventually stabilized around 1.1600.
Technical lines from top to bottom:
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. 1.1845 was the high point in early June.
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.
Below, 1.1510 is the new 2018 low and also a ten-month trough. Further down, 1.1480 served as support back in July 2017.
I remain bearish on EUR/USD
Central bank divergence sent the pair down, and there may be more in store. A lot depends on Draghi once again. So far, trade tensions have not hit the pair and this may come into play now.
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