EUR/USD Forecast July 22-26 – ECB rate statement, PMIs could shake up sleepy euro

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EUR/USD reversed directions last week, posting moderate losses. This week’s key events are PMIs and the ECB rate decision, so traders should be prepared for some movement from the pair. Here is an outlook at the highlights and an updated technical analysis for EUR/USD.

The well-respected German ZEW Economic Sentiment index posted a sharp decline, the second in as many months. The June release of -24.5 marked the weakest reading in a year. The pessimistic outlook covered the eurozone as well, as eurozone ZEW Economic Sentiment came in at -20.3. On the inflation front, eurozone Final CPI came in at 1.3%, up from 1.2% in the previous release. The core release improved to 1.1%, up from 0.8% a month earlier.

In the U.S., economic numbers remain strong. Retail sales ticked lower to 0.4% in June, down from 0.5%. Still, this was above the forecast of 0.1%. The numbers were identical for the core reading. There was positive news from manufacturing. The Empire State Manufacturing Index climbed to 4.3 in July, up from -8.6 a month earlier. The Philly Fed Manufacturing Index jumped to 21.8, its highest level in 9 months. The week ended up with UoM Consumer Sentiment, which climbed to 98.4 in July, up from 97.9 a month earlier.

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

  1. PMIs: Thursday, 7:15 for France, 7:30 for Germany, and 8:00 for the euro-zone. French services PMI continues to accelerate, improving to 53.1 in June. The estimate for June is 52.7. French manufacturing PMI climbed to 52.0 in June, pointing to weak expansion. German services PMI improved to 55.6, above the estimate of 55.3. The forecast for June remains at 55.3. The manufacturing PMI continues to point to contraction. The May release improved to 45.4, beating the estimate of 44.6. The forecast for June stands at 45.1. Eurozone manufacturing PMI came in at 47.8 and the estimate for June is 47.6. The services PMI improved to 53.4 in May and the June forecast stands at 53.3.
  2. Monetary data: Wednesday, 8:00. M3 Money Supply has been pointing to stronger annual growth, as readings have improved for three straight months. The May reading climbed to 4.8%, above the estimate of 4.6%. The June estimate stands at 4.6%. Private Loans grew by 3.3% in May, shy of the estimate of 3.5% The indicator is expected to dip to 3.2% in June.
  3. Spanish Unemployment Rate: Thursday, 7:00. The unemployment rate in the fourth-largest economy in the euro-zone rose to 14.7% in Q4 of 2018. The markets are predicting a strong improvement in Q1, with a forecast of 13.7%.
  4. German Ifo Business Climate: Thursday, 8:00. This key index slowed for a third successive month, dropping to 97.4 in June. The trend is expected to continue in July, with an estimate of 97.1.
  5. ECB Rate Decision: Thursday, 11:45. The ECB is expected to maintain the main financing rate at 0.00%. All eyes will be on the rate statement and on Mario Draghi’s follow-up press conference.

EUR/USD Technical analysis

Technical lines from top to bottom:

1.1620 has held in resistance since early October. 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.

The pair broke below support at 1.1345 early in the week. 1.1290 is next.

Close by, 1.1270 was a double-bottom in December 2018. This line saw some activity late in the week.

1.1215 remained relevant throughout the week.

1.1119 (mentioned last week) has held in support since the end of May.

1.1025 was a cap back in May 2017.

1.0950 is next.

1.0829 is the final support line for now.

I am bearish on EUR/USD

This week’s ECB meeting could have a significant impact on the direction of the euro. A dovish message from the rate statement or from Mario Draghi could dampen sentiment towards the euro. The Fed is talking about a rate cut, but this has been priced in by the markets. Elsewhere, tensions remain high in the Persian Gulf, and an escalation in hostilities between the U.S. and Iran could drive investors to the safe-haven U.S. dollar.

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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.