EUR/USD sustained sharp losses last week, dropping 1.1%. Investors will be keeping an eye on manufacturing and inflation data from Germany and the eurozone. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.
A dovish message from the ECB was clearly not to investors’ liking, as the euro fell sharply. The ECB announced that it was extending its forward guidance on interest rate levels, saying that it would not raise rates before 2020. Prior to this meeting, the ECB had been on record until now as saying that rates could move higher in late 2019. In an acknowledgment to the slowdown in the eurozone, the ECB announced a new round of long-term loans to eurozone banks and slashed the 2019 GDP forecast for the bloc to 1.1%, down from 1.7% in the previous forecast. Mario Draghi reinforced the bank’s dovish stance in his press conference, saying that downside risk was pointed to the downside, although a recession was unlikely.
In the U..S, job numbers were mixed on Friday. Nonfarm payrolls were a disaster, plunging to just 20 thousand, This was much worse than the forecast of 180 thousand. On a brighter note, wage growth improved to 0.4%, above the estimate of 0.3%. The soft nonfarm payrolls reading pushed the euro slightly higher to end the week.
EUR/USD daily chart with support and resistance lines on it. Click to enlarge:
- German Industrial Production: Monday, 7:00. The manufacturing sector continues to struggle in Germany. German industrial production has posted three straight declines, but a rebound is expected in January, with a forecast of 0.5%.
- French Final Private Payrolls: Monday, 9:30. The indicator has posted small gains of 0.1% for two successive quarters, missing the estimate of 0.2% each time. Another gain of 0.1% is expected in Q1.
- Eurozone Industrial Production: Wednesday, 10:00. The eurozone indicator is showing signs of weakness, posting three declines in the past four months. The markets are expecting a strong gain of 1.0% in January.
- German CPI: Thursday, 7:00. Inflation posted a sharp decline of 0.8% in January, matching the forecast. This marked the first decline since May 2017. The indicator is expected to rebound in February, with an estimate of 0.5%
- French CPI: Thursday, 7:45. French consumer inflation remains weak, with only one gain since September. CPI fell 0.4% in January and is expected to stay flat in February.
- Eurozone CPI Data: Friday, 10:00. Little change is expected in the February releases. Final CPI is expected to rise from 1.4% to 1.5%, while Core CPI is projected to edge lower to 1.0%, down from 1.1%. Inflation remains well below the ECB inflation target of 2.0%, as the slowdown in the eurozone shows no signs of improvement.
EUR/USD Technical Analysis
Technical lines from top to bottom:
1.1620 has held in resistance since the start of 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. 1.1345 was a swing low in mid-January.
1.1290 was a low point around the same period of time. 1.1270 was a double-bottom in December 2018.
1.1025 was a cap back in May 2017.
1.0950 is next.
1.0870 is the final support level for now.
I am bearish on EUR/USD
The eurozone economy is gripped in a slowdown, and even the German locomotive is showing signs of weakness. With the ECB in no mood to raise rates anytime soon, investors are not finding the euro particularly attractive, even with the Fed sending a dovish message to the markets.
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