EUR/USD moved to higher ground but then corrected and consolidated the previous gains. The big event coming up is the ECB decision. Will Draghi drag the euro down or unleash further upside? Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.
US dollar weakness extended into a new week and EUR/USD took advantage of this. The rise also triggered a seemingly coordinated response from ECB members: they expressed concern about the exchange rate and tried to talk the euro down. They had partial success in stalling the rise, but this can also be attributed to the recovery of the greenback. Data-wise, inflation was confirmed at 1.4% on the headline and 0.9% on the core. The US .government shutdown happened after markets closed, and has yet to take effect.Updates:
EUR/USD daily chart with support and resistance lines on it. Click to enlarge:
- German Bundesbank Monthly Report: Monday, 11:00. Germany’s central bank provides an assessment of the economy and it will probably be quite rosy. Forecasts for the German economy have been recently upgraded by various market participants. The Bundesbank would prefer a quicker end to the bond-buying scheme.
- German ZEW Economic Sentiment: Tuesday, 10:00. The ZEW institution’s survey of the economy was quite stable of late, with minimal changes to the headline numbers, which remain positive, but cautious. After a score of 17.4 in December, a minor rise to 17.8 is expected now. The all-European figure is projected to tick up from 29 to 29.7 points.
- Consumer Confidence: Tuesday, 15:00. The official EuroStat survey finally stopped showing negative numbers in November after many years in the red. And December already saw a clear positive score of 1, reflecting some optimism. A repeat of that score is forecast now.
- Flash PMIs: Wednesday: 8:00 for France, 8:30 for Germany, and 9:00 for the whole euro area. According to Markit’s final purchasing managers’ index for France’s manufacturing sector for December, the sector is growing nicely: the score of 58.8 is well above the 50-point threshold that separates expansion from contraction. A very similar number is on the cards for January: 58.7. The services sector was also doing well with an even better score: 59.1 points. A small slide to 58.9 is estimated. Germany’s manufacturing sector did even better: 63.3 points, a level which points out to very robust growth in this forward-looking indicator. A slide to 63.2 is on the cards now. The services sector in Germany lagged behind with 55.8 and a drop to 55.6 is expected. For the whole euro-zone, the manufacturing PMI is expected to slide from 60.6 to 60.4 and the services PMI from 56.6 to 56.5 points.
- German GfK Consumer Climate: Thursday, 7:00. Consumer confidence has stabilized at higher ground according to GfK’s 2000-strong survey. A score of 10.8 was recroded in December and a repeat of that number is forecast for January.
- Spanish Unemployment Rate: Thursday, 8:00. Spain, the euro-zone’s fourth-largest economy, is still struggling with high unemployment, 16.4% in Q3 2017. The numbers for Q4 are expected to show a slide to 16.1%. The peak was above 27%.
- German Ifo Business Climate: Thursday, 9:00. Germany’s No. Think-Tank also stabilized after a winning streak of gains. The survey of some 7000 analysts and investors stood at 117.2 points in December and the first survey for 2018 is projected to yield a score of 117.1.
- Rate decision: Thursday, 12:45, press conference at 13:30. The European Central Bank already announced in October that the QE program will run at least until September 2018, albeit at half the rate from this month, January, at 30 billion euros per month. ECB president Mario Draghi left the door open for further bond buying beyond September, in disagreement with some of the more hawkish members of the Governing Council. The meeting minutes from the December meeting showed more optimism about the economy and potentially a change in communication: perhaps an announcement about the end of QE in early 2018. However, the ascent of the euro hurts their efforts to push inflation higher and a few members began sending out warnings about the exchange rate. On this background, Draghi and co. are likely to refrain from any big announcements now, leaving the door open for extending the program beyond September, and making an official announcement a bit later on, perhaps in the March meeting, when they have new forecasts.
- Belgian NBB Business Climate: Thursday, 15:00. This wide survey of around 6000 business has been positive in the past three months but hasn’t gone anywhere fast. A score of just 0.1 was seen in December.
- Monetary data: Friday, 9:00. M3 Money Supply, or the amount of money in circulation, has risen at an annual pace of 4.9% in November, a healthy expansion. The same rate is predicted now. Private loans have risen by 2.8% y/y and an acceleration to 2.9% is estimated for December.
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar extended its gains, initially pausing at the 1.2280 level (mentioned last week) before marching forward and then consolidating.
Technical lines from top to bottom:
1.2725 is high up in the sky but worth mentioning. 1.2480 which protects the 1.25 is next.
1.2323 was the peak point, but it was only a swing high. More serious resistance is at the round number of 1.23, which capped the pair several times in January 2018.
1.2215 was the first high after the big break and is a pivotal line. 1.2165 is a swing low after the move.
The 2017 peak of 1.2090 remains important. 1.20 is the obvious round level and also worked as resistance in September.
1.1950 was the high level seen in November and a stepping stone towards 1.20. 1.1860 capped the pair in August and in October while working as support in September.
1.1820 worked as a cushion to the pair in late November and works as weak support. 1.1760 served as a cushion in November and also played a role beforehand.
1.1710 was the high of August 2015 and also worked as support in November. 1.1670 was a swing low in October. and hasn’t worked too well.
I remain bullish on EUR/USD
Draghi can try, but is unlikely to push the euro lower for a long period of time. The euro-zone economies are doing well and the QE program is unlikely to be extended beyond September. In the US, the economy is also looking good but that is already baked into the price. The surprising government shutdown may add to the dollar’s issues.
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