EUR/USD Forecast Jan. 28-Feb. 1 – Euro subdued as ECB holds the course

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EUR/USD showed limited movement last week. The upcoming week will be busy, with the eurozone and Germany releasing GDP, CPI and manufacturing PMIs. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.

There was a surprise development in the U.S shutdown deadlock. President Trump agreed to reopen government services for a 3-week period. This move will allow Federal government workers to be paid and could pave the way for a full restoration of federal government services.

German data was soft last week. ZEW Economic Sentiment remained deep in negative territory. German Manufacturing PMI continued to fall, dropping to 49.9 points. This pointed to contraction in the manufacturing sector.

The ECB maintained its monetary policy at its monthly policy meeting. Policymakers remained cautious, saying that risks “have moved to the downside”. This dovish stance indicates that the euro will not be receiving any support from the bank, and will have to rely on stronger data in order to attract investors.

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

  1. Monetary Data: Monday, 9:00. M3 Money Supply dipped to 3.7%, just below the estimate of 3.8%. The estimate for the upcoming release is 3.8%. Private Loans has been steadily moving higher, and the trend is expected to continue, with a forecast of 3.4%.
  2. Spanish Unemployment Rate: Tuesday, 8:00. The fourth-largest economy in the euro-zone has seen unemployment steadily fall in 2018, dropping to 14.6% in Q2. A slight drop is expected in Q3, with a forecast of 14.4%.
  3. French Flash GDP: Wednesday, 6:30. The euro zone’s second-largest economy saw growth improve in Q3, with a gain of 0.3%. Another gain of 0.3% is expected in Q4. The French figure feeds into the all-European number on Thursday, with a gain of 0.2% projected.
  4. German GfK Consumer Climate: Wednesday, 7:00. IFO is Germany’s No. 1 Think Tank. The Business Climate has slowed down to 10.4 for two successive months, its lowest score since May 2017. The negative trend is forecast to continue, with an estimate of 10.3 points.
  5. German CPI: Wednesday, during the European morning with the final figure at 13:00. The eurozone’s largest economy has seen inflation fall to just 0.1% in the past two readings, missing the estimate on both occasions. A sharp drop of 0.7% is expected in January.
  6. French Consumer Spending: Wednesday, 7:45. French consumers cut back on spending in November, as the reading of- 0.3% marked the second contraction in three months.
  7. Spanish Flash GDP: Thursday, 8:00. Spain has posted two successive quarters with growth of 0.6%, the same gain is projected for Q4.
  8. German Retail Sales: Monday, Tentative. After a host of weak releases, retail sales rebounded in November, with a gain of 1.4%, well above expectations. However, a weak reading is expected in December, with an estimate of -0.4%.
  9. German Unemployment Change: Thursday, 8:55. Germany enjoys a consistent drop in the number of unemployed. The November figure of -14 thousand beat the forecast. Another decline is expected in December, with an estimate of -11 thousand.
  10. Eurozone GDP: Thursday, 10:00. The initial read of GDP tends to have the most significant impact, even though it does not include data from Germany. In Q3, growth slipped to 0.2% and the same gain is forecast for Q4.
  11. Eurozone Unemployment Rate: Thursday, 10:00. The unemployment rate in the euro-zone is dropping quite nicely since it peaked above 12% in 2013. In November, the jobless rate fell to 7.9%, below the symbolic level of 8.0%. Another score of 7.9% is forecast for December.
  12. Manufacturing PMIsFriday, 8:50 for France, 8:55 for Germany, and 9:00 for the euro-zone. Markit’s forward-looking indices have shown a significant slowdown, especially in the manufacturing sector. The Spanish score fell to 51.1 in December, its lowest since August 2016. The estimate for January is 50.5 points. Italy’s PMI remained in contraction territory for a third successive month, at 49.2 points. The forecast for January stands at 49.0 points. France’s score fell to 47.5, but is expected to improve to 51.2 points. The German release dipped to 51.5, but is expected to fall to 49.9 points in January. The eurozone PMI dropped to 51.1, and is forecast to fall further to 50.5 points.
  13.  Eurozone Flash CPI: Friday, 14:00. The headline consumer price index slipped to 1.6% y/y in December, falling below the 2% level for the first time since May.  The indicator is expected to drop to 1.4% in January. Core CPI remained at 1.0% for a second straight month and another 1.0% gain is expected in January.

* All times are GMT

EUR/USD Technical Analysis

Euro/dollar started the week quietly, but showed stronger movement late in the week. The pair tested support at the round number of 1.13 (mentioned last week) late in the 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 1.1300 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 am neutral 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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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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