EUR/USD Forecast October 22-26 – Will Draghi drag the euro down?

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EUR/USD wobbled in a week that saw ups and downs and the pair ended around the 1.1500 level. The ECB rate decision is left, right, and center in the upcoming week. Will Draghi down the euro? Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.

Euro-zone data was mostly disappointing with the German ZEW Economic Sentiment dropping to new lows. While the trade balance bounced back, it remained below 20 billion euros that characterized it beforehand. The US Dollar was driven down by weak retail sales figures but the hawkish meeting minutes from the FOMC sent it higher. The volatility in stocks also had a significant impact on currencies, but it wasn’t straightforward.

Updates:

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

  1. German Monthly Report: Monday, 10:00. The German central bank, the Bundesbank publishes a monthly report about the euro zone’s largest economy. While economic growth looks robust, business surveys indicate a slowdown. It will interesting to hear what the central bank has to say about the situation.
  2. German PPI: Tuesday, 6:00. Prices at factory gates feed into consumer prices. The Producer Price Index increased by 0.3% in August. We will now get the data for September, which is also predicted to come out at 0.3%.
  3. Consumer Confidence: Tuesday, 14:00. EuroStat’s official consumer sentiment gauge is gradually retreating and it hit -3 points in September. The fresh figure for October is predicted to be identical, but given the recent trend, it may drop again.
  4. Flash PMI’s: Wednesday morning: 7:15 for France, 7:30 for Germany, and 8:00 for the whole euro-zone. Markit’s forward-looking survey for France’s manufacturing sector stood at 52.5 points in September, barely above the 50-point threshold separating expansion and contraction. A marginal drop to 52.4 is on the cards now, in the preliminary publication for October. The services sector is expected to have a score of 54.7 after 54.8 beforehand. Germany had a score of 53.7 in manufacturing and it is now expected to slide to 53.5. The services sector carries expectations for a decline from 55.9 to 55.5 points. The euro-zone is forecast to see a slide from 53.2 to 53.1 in manufacturing and from 54.7 to 54.5 in services.
  5. Monetary data: Wednesday, 8:00. M3 Money Supply advanced by 3.5% y/y in July, slower than it had done so previously. A repeat of the same level is on the cards now. Private loans expanded by 3.1% and 3.2% is expected in August. The ECB monitors this data. Faster expansion indicates more robust economic activity.
  6. Belgian NBB Business Climate: Wednesday, 13:00. Despite coming from a small country, the gauge is considered an important barometer for the whole euro-zone. The score stood at 1.2 and is now estimated to slide to 0.5 points.
  7. German GfK Consumer Climate: Thursday, 6:00. This 2,000-strong survey is off the highs but still shows upbeat levels. After advancing to 10.6 points in September, a slide back to 10.5 is on the cards now.
  8. Spanish Unemployment Rate: Thursday, 7:00. The fourth-largest economy in the euro-zone saw its jobless rate stand above 25% at the peak of the crisis but it fell to 15.3% in Q2 2018. Another decrease is expected, to 14.9% in Q3.
  9. German Ifo Business Climate: Thursday, 8:00. Germany’s No. 1 Think-tank showed a surprising increase in its survey of around 7,000 businesses to 103.7 points in September. A slide to 103.2 points in the survey for October. All in all, the numbers here are more stable than in the ZEW survey.
  10. Euro-zone rate decision: Thursday, 11:45, press conference at 12:30. The European Central Bank reduced the pace of its bond-buying scheme this month, and now purchases only 15 billion euros every month, en route to ending the program by the end of the year. However, there are some signs of a slowdown and core inflation dropped below 1% once again. The Bank is unlikely to make any policy announcements at this meeting, which does not consist of new forecasts. However, markets will scrutinize every word that comes out of President Mario Draghi’s mouth. In the previous meeting, Draghi was relatively upbeat. He may change his tone now.
  11. Draghi speaks (again): Friday, 14:00. The ECB President will make another public appearance, this time with a speech in Brussels. He may use the opportunity to clarify anything that needs explanations after the press conference.

* All times are GMT

EUR/USD Technical Analysis

Euro/dollar kicked off the week with a move to the upside but turned lower quite quickly, eventually hitting 1.1422 (discussed last week), thus creating a double-bottom.

Technical lines from top to bottom:

1.1915 was the low point in January and remains relevant. 1.1850 was the peak on June 14th, before Draghi sent the euro down.

1.1815 was the high point in September.  1.1750 held the pair no less than four times in July and remains a powerful level.

1.1720 is a veteran line that worked in both directions and it capped the pair in mid-September. 1.1650 was a swing low in late August and is very closely followed by 1.1615 which played a pivotal role.

1.1570 was the low point as September came to an end 1.1530 supported the pair twice in August, making it an important line.

1.1460 was the low point in the initial drop in October 2018. 1.1422 was the low point in mid-October.

1.1365 temporarily cushioned the drop in EUR/USD on its way down. 1.1300 is a round number that held the pair in mid-August and also held the pair down in June 2017.

I remain bearish on EUR/USD

Monetary policy divergence remains the name of the game. The ECB will likely remind us of weak inflation. In addition, the Fed is on course to hike rates once again.

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Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

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