EUR/USD Forecast Feb. 18-22 – Soft German and eurozone data weighing on euro

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EUR/USD lost ground last week, and closed below the 1.13 line for the first time since June 2017. It’s a busy week, with Germany release CPI and GDP reports. We’ll also get a look at German and  eurozone PMIs. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.

German Preliminary GDP came in at a flat 0.0%, pointing to stagnation in the eurozone’s largest economy. Eurozone Flash GDP posted a modest gain of 0.2%. In the U.S., consumer data was disappointing. Inflation levels remained weak and retail sales and core retail sales both recorded sharp declines.

Risk appetite improved last week, but the euro couldn’t take advantage. There was positive news on two fronts which cheered investors and sent equity markets higher. In the U.S., lawmakers agreed on a proposal which will avert another government shutdown, and Trump agreed to the deal. However, Trump has said he will declare a national emergency in order to secure funding for the wall, which could lead to fireworks on Capitol Hill.

On the trade front, China and the U.S. completed a third round of talks last week, with U.S. Treasury Secretary Steven Mnuchin calling the negotiations “productive”. The key question is whether President Trump will suspend the March 1 deadline to impose new tariffs on China. The U.S. has threatened to raise tariffs on some $200 billion of Chinese goods from 10% to 25%, but Trump has said he could let the deadline pass if there is progress in the talks.

EUR/USD daily chart with support and resistance lines on it. Click to enlarge:

https://www.tradingview.com/x/LBmy62wa/

  1. Current Account: Tuesday, 9:00. The eurozone surplus narrowed to EUR 20.3 billion in November, short of expectations. Will the indicator bounce back in December?
  2. German ZEW Economic Sentiment: Tuesday, 10:00. Investors and analysts remain pessimistic about the economic outlook for Germany, although the readings have improved. The January score came in at 15.0 and the forecast for February stands at -14.1 points. It’s been a similar trend for the eurozone indicator, which came in at -20.9 in January, and is projected to improve to -18.2 points in February.
  3. German PPI: Wednesday, 7:00. Producer Prices feed into consumer ones. PPI posted a rare decline in December, with a reading of -0.4%. Another decline is forecast for January, with an estimate of -0.2%.
  4. German Final CPI: Thursday, 7:00. Inflation levels have been weak, pointing to softer economic activity in the eurozone’s largest economy. The preliminary release of German inflation came in at -0.8%, and no change is expected in the final release.
  5. French Final CPI: Thursday, 7:45. French inflation came in at -0.5% in the preliminary release, and no change is expected in the revised release.
  6. Flash PMIs : Friday, 8:15 for France, 8:30 for Germany, and 9:00 for the euro-zone. Markit’s forward-looking surveys for January pointed to softer manufacturing activity in Germany and the eurozone, as weaker a weaker global economy has meant less demand for European exports. Still, the French release improved. German services PMI expanded, but the eurozone and French indicators fell, as the services sector is also under pressure.
  7. ECB Monetary Policy Meeting Accounts: Thursday, 12:30. The minutes provide a detailed record of the January policy meeting. Investors will be looking for hints regarding the timeframe for a rate hike by the ECB.
  8. German Final GDP: Friday, 7:00. German revised GDP reading is expected in at 0.0%, unchanged from the preliminary release earlier in the month. The stagnation in the German economy is worrisome and could impact on the euro.
  9. German Ifo Business Climate: Friday, 9:00. Business confidence has slowed for five successive months, as the business sector grows more concerned about the outlook for the German economy. The indicator is expected to tick down to 99.0 points in February.
  10. Eurozone CPI Data: Friday, 14:00. Final CPI has been dropping in the fourth quarter and is expected to slow in January, with an estimate of 1.4%. Final Core CPI has recorded two successive gains of 1.0%, and is forecast to edge upwards to 1.1% in January.

* All times are GMT

EUR/USD Technical Analysis

Euro/dollar showed considerable movement in both directions, but was unable to establish any momentum and ended the week with slight losses.

Technical lines from top to bottom:

1.1620 was a peak in the autumn. 1.1570 is next.

1.1515 was a high point at the end of January. 1.1435 was a low point at the beginning of February.

1.1390 was a stepping stone on the way up in late January and capped EUR/USD earlier. 1.1345 was a swing low in mid-January.

1.1290 was a low point around the same period of time. 1.1270 was a double-bottom in December 2018 and the 2018 low of 1.1215 is next.

This is followed by 1.1119. The final support level for now is 1.1046.

I remain bearish on EUR/USD

The German and eurozone economies are in slowdown mode, as inflation, GDP and manufacturing data continue to struggle. If there is a breakthrough in the conflict between the U.S. and China, sentiment could improve for the euro. In the meantime, however, the dollar remains a market favorite and the euro could face further headwinds.

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About Author

Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.

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