EUR/USD continues to show volatility. The pair reversed directions last week, falling 1.1%. It’s a busy week in the eurozone. Germany releases ZEW Economic Sentiment and the eurozone and Germany post manufacturing PMIs. As well, ECB President Mario Draghi speaks at the ECB forum in Portugal. Here is an outlook at the highlights and an updated technical analysis for EUR/USD.
Eurozone industrial production came in at 0.5% in April, which marked a third successive decline. The ongoing contraction reflects significant weakness in the manufacturing sector, which has been hit hard by global trade tensions, which have lessened demand for German and eurozone exports.
In the U.S., the spotlight was on consumer inflation and spending data. Inflation data remains stubbornly low, well below the Federal Reserve’s target of 2.0%. In May, inflation numbers were soft, as CPI and core CPI came in at 0.1%. As expected, U.S. consumer spending data improved sharply in May. Core retail sales climbed 0.5%, matching the estimate. Retail sales also improved to 0.5%, but fell shy of the forecast of 0.7%. These consumer inflation and consumer spending numbers could play a crucial role in the Federal Reserve’s forward guidance for rates. The markets are prepared for rate cuts in the second half of the year. The CME Group has set the odds of a July cut at 62% and another cut in September at 55%. Lower interest rates make the U.S. dollar less attractive to investors, which could help boost the euro.
EUR/USD daily chart with support and resistance lines on it. Click to enlarge:
- ECB President Draghi Speaks: Tuesday, 8:00. Draghi will speak at the ECB forum in Portugal. If Draghi surprises the markets with unexpected comments, the euro could move sharply.
- German ZEW Economic Sentiment: Tuesday, 9:00. Institutional investors have been pessimistic. In May, the indicator declined by 2.1 points and the June estimate stands at -5.7 points. Eurozone ZEW Economic Sentiment is also expected to post a second successive decline, with a forecast of -3.6.
- German PPI: Wednesday, 6:00. The producer price index rebounded in April with a gain of 0.5%, after two declines. Another gain is expected in May, with a forecast of 0.2%.
- Current Account: Wednesday, 8:00. The eurozone current account surplus continues to fall. The surplus dropped to EUR 24.7 billion in March, and the downturn is expected to continue in April, with an estimate of EUR 23.2 billion.
- Consumer Confidence: Thursday, 14:00. Consumer confidence has been mired in negative territory for almost a year, as a weak eurozone economy has soured the mood of consumers. The indicator came in at -7 in May and no change is expected in the June release.
- PMIs: Thursday, 7:15 for France, 7:30 for Germany, and 8:00 for the euro-zone. French services PMI came in at 51.7 in May, indicating weak expansion. The estimate for May is 51.6. French manufacturing PMI improved to 50.6 in May, and is expected to improve to 51.0 in June. German services PMI has been pointing to expansion, and another solid release is expected, with an estimate of 55.3. Manufacturing has been much weaker, with readings below 50, which points to contraction. The trend in the eurozone has been similar, with contraction expected for the manufacturing PMI (48.0), while services PMI is forecast to point to expansion (53.0).
* All times are GMT
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. This is followed by 1.1345, which was tested late in the week.
1.1290 has switched to a support role. Close by, 1.1270 was a double-bottom in December 2018.
The pair broke through support at 1.1215.
1.1025 was a cap back in May 2017. 1.0950 is next.
1.0870 was a swing high in December 2017.
1.0820 is the final support line for now.
I am bearish on EUR/USD
With tensions rising in the Middle East and the global trade war weighing on the eurozone, the euro is not all that attractive to investors. The U.S. economy remains solid, although the increasing likelihood of a rate cut later this year could limit the upside for the greenback.
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