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The Euro lost ground this week but managed to remain above the major support line. Jean-Claude Trichet’s rate decision and 8 other European releases will shape the direction of the Euro this week. Here’s an outlook for this week’s events in the Euro-zone, and an updated technical analysis for EUR/USD.

For the latest outlook, check out the section:  EUR/USD  Forecast.

EUR/USD forex chart with support and resistance lines. Click to enlarge:

EUR/.USD October 2009

ECB President, Jean-Claude Trichet, contributed to the Euro’s weakness when he said that a strong dollar is extremely important. Indicators were mixed. Let’s see the nice amount of data this week:

  1. Sentix Investor Confidence: The first notable indicator in Europe is this survey of 2000 investors. Like many other surveys, the Sentix Investor Confidence show pessimism, but smaller. In the past three months, this index has improved, hitting -14.6 last time. This month it’s predicted to edge up to -11.9. Published on Monday at 8:30 GMT.
  2. Retail Sales: This all-European figure impacts ECB policy makers, despite it’s late release, after Germany and France. Retail salesalways move currencies, and the disappointing European decline in sales has hurt the Euro. In the past three months, they fell short of expectations and also declined. After last month’s 0.2% drop, pessimism has taken over, and they’re expected to fall by 0.4% this time. Published on Monday at 9:00.
  3. Final GDP: The second quarter was not too bad in Europe. The economy shrank by only 0.1%, better than expectations. This was the initial release. On Wednesday at 9:00 GMT, this number is expected to be confirmed. Any surprise means no contraction or even growth. A surprise would definitely boost the Euro. Germany got out of recession in Q2. Did the rest of the continent follow?
  4. German Factory Orders: Europe’s biggest economy enjoys strong factory orders. In the last three months, factory orders grew in very strong numbers: 4.4%, 4.5% and 3.5%. Expectations continue to be more modest, for a growth of 1.2% this time. Published on Wednesday at 11:00 GMT.
  5. German Industrial Production: This industry related figure from Germany hasn’t been that good. German Industrial Production has declined in the past two months, not meeting growth expectations. Estimations continue to be strong. A rise of 1.6% is expected to follow last month’s 0.9% decline.
  6. Rate decision: Jean-Claude Trichet and fellow ECB members will probably leave  the Minimum  Bid  Rate unchanged, at 1%. This major event is due on Thursday at 11:45 GMT. Recent signs in Germany such as Factory Orders and Q2 GDP have shown that Europe is slowly recovering. The very modest Quantitative Easing program will probably not be modified. Possible hints about future policy might be released in the accompanying ECB Press Conference, due at 12:30 GMT.
  7. German Final CPI: After one month of surprise, prices fell again in Germany. September’s Consumer Price Index is fell by 0.4% according to the initial release. This number is expected to be confirmed on Friday at 6:00 GMT.
  8. French Industrial Production: Europe’s second largest economy, France, also showed slow and steady recovery. Industrial production is expected to grow for a fourth month in a row, rising by 0.4% after a 0.1% rise last month.
  9. Jean-Claude Trichet talks: Less than one day after the rate decision, the head of the ECB will talk again. His statements move the markets many time. This is due on Friday at 8:30 GMT.

EUR/USD Technical Analysis

After reaching new highs of 1.4842 in the previous week, this week saw a steady decline of EUR/USD. Following Friday’s Non-Farm Payrolls, EUR/USD went as low as 1.4480, less than 50 pips above the previous resistance line, which it had a very hard time to break. Finally, the close at 1.4574 is in the range once again.

Looking down, the nearest support line is 1.4444, which the Euro broke about 3 weeks ago. Below this major support, 1.42 serves as minor support, as it did during the summer.

Looking up, 1.4720 was a peak at the beginning of the year, and also now worked as a minor resistance line. Further up, there’s a stronger resistance line at 1.4908, which was also a support line in the past, and was tested several times as a resistance line afterwards.

I’m slightly bullish on the Euro.

The European economies, and especially Germany, are making a solid recovery. For this popular pair, there are many excellent technical  analyses  I recommend reading:

  • Casey Stubbs also continues to be bullish on EUR/USD.
  • Mohammed Isah discusses an evening star candle on EUR/USD.
  • Jay Norris shows that the uptrend continues.

Further reading in Forex Crunch: