EUR/USD Forecast March 1-5 – Euro sags below 1.21 at end of week

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EUR/USD was down sharply on Friday and posted a losing week. There are seven events on the calendar this week, including PMIs and eurozone inflation. Here is an outlook at the highlights and an updated technical analysis for EUR/USD.

German Ifo Business Climate improved to 92.4, up from 90.1. This marked a 5-month high. However, German GfK Consumer Climate came in at -12.9, marking an 11th successive decline. France, the second-largest economy in the eurozone, showed a 1.4% contraction in GDP in Q4 of 2020. Eurozone headline CPI gained 0.9% and the core reading climbed 1.4% in January. This confirmed the original estimate.

In the US, Fed Chair Powell had a dovish message for the markets in his testimony before Congress.  Second-estimate GDP for Q4 came in at 4.1%, revised upwards from 4.1%. There was positive news from Durable Goods reports, with strong acceleration in January. The headline read jumped 3.4% while Core Durable Goods rose 1.4%.

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

  1. German Prelim CPI: Monday, All Day. Germany’s CPI jumped 0.8% in January, its highest level since April 2019. However, inflation is expected to slow to 0.4% in February, with a forecast of 0.4%.
  2. Manufacturing PMIs: Monday, 8:50 in France, 8:55 in Germany, and 9:00 for the whole eurozone. The German and eurozone manufacturing sectors remain well into expansionary territory. The second-estimate PMIs for Germany and the eurozone are expected to confirm the initial readings, with readings of 60.6 and 57.7, respectively. France, Spain and Italy are all projected to post readings above the 50-level, which separates contraction from expansion.
  3. German Retail Sales: Tuesday, 7:00. In December, Retail Sales showed a sharp contraction, with a read of -9.2%. A modest gain is expected in January, with an estimate of 0.9%.
  4. Inflation Report: Tuesday, 10:00. Inflation pressures have been accumulating in the eurozone. Headline CPI is expected to remain unchanged at 0.9%, while the core reading is projected to show a gain of 1.1%.
  5. Services PMIs: Wednesday, 8:15. Services remain in contraction, with readings below the 50-level. The second-estimate PMIs for Germany and the eurozone are expected to confirm the initial readings, at 45.9 and 44.7, respectively. Services in Italy, Spain and France also are showing contraction, with readings below the neutral 50-level.
  6. Retail Sales: Thursday, 10:00. Retail Sales rebounded in December with a reading of 2.0%, which was a 4-month low. The markets are expecting a downturn in January, with a gain of -1.5%.
  7. German Factory Orders: Friday, 7:00. Factory Orders declined by 1.9% in December, the first decline since April. The indicator is forecast to rebound in January, with an estimate of 0.8%.

EUR/USD Technical analysis

Technical lines from top to bottom:

We start with resistance at 1.2331 (mentioned last week).

1.2251 has held in resistance since the first week in January.

1.2170 is an important monthly resistance line.

1.2037 is the first support level. It is a weak line.

1.1957 has held in support since the first week in February.

1.1850 is the final support line for now.

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I remain neutral on EUR/USD

The US dollar showed strong gains last week, but this could be the tail end of a dollar short squeeze. At the same time, the US economy continues to show stronger numbers than in the eurozone.

Further reading:

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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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