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EUR/USD  dropped as the US Dollar returned to dominating the scene and amid the ongoing Italian drama. What’s next? The ECB Meeting Minutes stand out. Here is an outlook for  the highlights of this week and an updated technical analysis for EUR/USD.

The Italian government officially  agreed on a budget deficit of 2.4%, above the EU request of 2%. They tried to sweeten it by promising lower deficits in 2020 and 2021. The verdict from the Commission still awaits. The US Dollar jumped thanks to upbeat data, yields that jumped above 3.20%, and Fed Chair Powell’s hawkish words: he is open to setting interest rates above inflation: tight monetary policy. The NFP missed expectations with 134K but it was countered by an upwards revision and OK wage growth. Euro-zone data disappointed with unimpressive PMI’s and a drop in retail sales.

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

  1. German Industrial Production: Monday, 6:00. Germany is the locomotive of the euro-zone, with its industrial exports leading the 19-country currency bloc. However, the recent industrial output numbers missed expectations. July saw a disappointing drop of 1.1%. We may see a bounce in the report for August.: +0.4% is projected.
  2. Sentix Investor Confidence: Monday, 8:30. The broad survey of some 2800 analysts and investors fell short of expectations in September with a fall to 12 points, back to July’s level. A similar number could be seen now: 11.4 is expected.
  3. German Trade Balance: Tuesday, 6:00. As mentioned earlier, exports from the continent’s largest economy carry the bloc and are also behind a trade surplus. However, the surplus squeezed to only 15.8 billion euros in July. A similar surplus of 15.9 billion is expected.
  4. French Industrial Production: Wednesday, 6:45. The second-largest economy in the euro-zone enjoyed an increase of 0.7% in output back in July, better than had been expected. Can French industry beat the German one for another month? An increase of 0.5% is on the cards.
  5. French Final CPI: Thursday, 6:45. France’s Consumer Price Index dropped by 0.2% in September according to the preliminary release. The final number is expected to confirm the initial read.
  6. ECB Meeting Minutes: Thursday, 11:30. The European Central Bank publishes the internal deliberations from the September meeting. Back then, the ECB made no changes to its policy. However, ECB President Mario Draghi surprised by seeing the glass half full. He is usually dovish. Comments about wages, inflation, and future monetary policy will be watched very closely.
  7. German Final CPI: Friday, 6:00. The original publication for Germany showed a rise of 0.4% in consumer prices in September. The final number will likely confirm it. Despite the bounce in the monthly figure, the yearly one was disappointing and weighed on the all-European measure.
  8. Industrial Production: Friday, 9:00. The overall output of the euro area fell by 0.8%, slightly less than the drop in Germany. The figure heavily depends on the readings for Germany and France. An increase is likely: -.4% is expected.

* All times are GMT

EUR/USD Technical Analysis

Euro/dollar was doing OK initially but then it fell sharply, losing the support at 1.1530 mentioned last week.

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. 1.1435 held the EUR/USD down when it was trading around the yearly lows.

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

Even if everything with Italy is resolved, the basic fundamentals have not changed: the Fed is tightening and the ECB is moving only very gradually towards the exits. The ECB Meeting Minutes will serve as a reminder.

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