EUR/USD Forecast March 25-29 – sluggish euro loses ground despite dovish Fed


EUR/USD climbed to a 7-week high during the week, but was unable to consolidate and ended the week with slight losses. The key events this week are German retail sales and inflation data, as well as U.S GDP. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.

The Federal Reserve has been decidedly dovish since January, but the pessimistic message from the Wednesday policy meeting surprised the markets. The Fed’s rate outlook indicated that a majority of policymakers expected rates to stay on hold until 2020. This was in sharp contrast to the previous quarter’s forecast, in which the FOMC projected two hikes in 2019.

The rate statement was blunt, stating that economic activity “has slowed”. Policymakers singled out slower growth in household spending and business investment and noted that inflation has decreased due to lower energy prices. The Fed also announced that it would stop reducing its $4 trillion balance sheet by $50 billion a month. This move is intended to make monetary policy more accommodative and stimulate growth.

German and eurozone manufacturing PMIs continue to slide and are pointing to contraction. The German reading fell to 44.7, its lowest level in almost seven years. The eurozone release slowed for an eighth successive month. The manufacturing sector has been hit hard by the global trade war, which has taken a bite out of key eurozone imports, such as German cars.

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

    1. German Ifo Business Climate: Monday, 9:00. Business confidence has slowed for six successive months, as the eurozone and Germany remain gripped in an economic slowdown. The February reading came in at 98.5, and the March estimate stands at 98.7 points.
    2. Monetary Data: Tuesday, 9:00. M3 Money Supply dipped to 3.8% in January, shy of the estimate. The February forecast is forecast to edge up to 3.9%. Private Loans is projected to tick up to 3.3% In February.
    3. German GfK Consumer Climate: Wednesday, 7:00. Consumer confidence has held steady, with gains of 10.8 over the past two months. An identical reading is expected in the March release.
    4. German CPI: Thursday, All Day. German inflation rebounded nicely in February, with a gain of 0.5%. The forecast for March stands at 0.6%.
    5. German Import Prices: Friday, 7:00. Import prices have struggled, posting three straight declines, and missing the forecasts each release. The indicator is expected to rebound in March, with an estimate of 0.5%.
    6. German Retail Sales: Friday, 7:00. Retail sales soared in January, with a gain of 3.3%, above the estimate of 1.9%. However, the markets are braced for a decline of 1.0% in February.
    7. French Consumer Spending: Friday, 7:45. Consumer spending impressed in January, with a gain of 1.2%. The forecast for February is 0.2%.
    8. French CPI: Friday, 7:45. Inflation has been anemic, as the last gain was back in October. Investors are expecting a strong rebound in February, with a forecast of 0.9%.
    9. German Unemployment Change: Friday, 8:55. The labor market remains strong, as unemployment rolls continue to shrink. The January reading of 21 thousand marked a 5-month high. The estimate for February is -10 thousand.

EUR/USD Technical Analysis

Technical lines from top to bottom:

We start with resistance at 1.1750. Close by, 1.1720 is a veteran line that worked in both directions and it capped the pair in mid-September.

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 remained relevant during the week.

1.1290 (mentioned last week) was breached in support late in the week, as EUR/USD dropped sharply.

1.1270 was a double-bottom in December 2018.

1.1215  which was the low-point in 2018. This is followed by 1.1119.

1.1025 was a cap back in May 2017.

1.0950 is the final support level for now.

I am bearish on EUR/USD

The eurozone continues to post lukewarm data and the ECB has said that it will not raise rates before 2020. With the U.S. economy in good shape, the euro will have trouble attracting investors until the eurozone data improves.

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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.

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