The euro advanced for a second consecutive week, riding on monetary stimulus in others regions and ignoring local weakness. As the pair approaches important resistance, could the strong euro backfire? German ZEW Economic Sentiment and Mario Draghi’s speech are the main events this week. Here is an outlook on the main market-movers and an updated technical analysis for EUR/USD.
Last week, Eurozone numbers continued to look weak but German readings shined with a 2.3% climb in German Factory Orders and a 0.5% jump in Industrial Production followed by an improved trade balance of 17.1 billion surplus. Will the German economy continue to climb despite the Eurozone’s sluggish conduct?
Updates: Eurozone Trade Balance posted a surplus of 12.0 billion euros, beating the estimate of 9.9 billion euros. ECB President Mario Draghi spoke at the University of Amsterdam. Italian Trade Balance surprised the markets with a surplus of 1.09 billion euros. The estimate stood at -1.41 billion euros. German ZEW Economic Sentiment plunged to 36.3 points, way off the estimate of 41.5 points. Eurozone CPI gained 1.7%, matching the estimate. Eurozone Core CPI came in at 1.5%, edging past the estimate of 1.4%. Eurozone ZEW Economic Sentiment also disappointed, dropping to 24.9 points. This was well off the estimate of 31.5 points. EUR/USD has moved higher, as the pair was trading at 1.3137. ECB head Mario Draghi spoke at the European Parliament in Strasbourg. German 10-year bonds produced a yield of 1.28%, lower than the previous yield of 1.36%. Spanish 10-year bonds fetched a price yield of 4.61%, higher than the previous yield of 4.48%. The G20 meets in Washington on Thursday for a two day meeting. EUR/USD has edged lower, and was trading at 1.3038.
- Italian Trade Balance: Tuesday, 9:00. Italy recorded a trade deficit of EUR 1.62 billion Million in January, following EUR 2.11 billion surplus in December. In 2012, Italy was able to re-balance its foreign trade flows. Due to a reduction in imports, Italy succeeded to turn its deficit into surplus. A smaller deficit of 1.41 billion is expected now.
- German ZEW Economic Sentiment: Tuesday, 10:00. German analysts and investors believe the economy will likely gain momentum in the coming months, amid solid private consumption and a potential pick-up in private investments. Recent data on growing consumption and private investments support this view, indicating Germany will recover over 2013. This indicator is expected to drop to 41.6. The all-European figure is expected to decline to 31.5 this time. The IFO index dropped last time.
- Inflation data: Tuesday, 10:00. Annual inflation in the eurozone declined to 1.8% in February, amid lower energy costs, following a 2.0% inflation rate in January. This was the first drop below the ECB 2.0% target rate since November 2010.The ECB predicts inflation will continue to ease even further this year, amid a prolonged recession in the 17-member eurozone. Meantime core inflation, excluding energy, food, alcohol and tobacco – declined to just 1.3% in February, from 1.5% a year ago. 1.7%, CPI is expected to rise 1.7% while core CPI is expected to climb 1.4%.
- Mario Draghi speaks: Tuesday, 14:00. ECB President Mario Draghi will speak in Strasbourg about the ECB’s activities at the European Parliament. His words may cause volatility in the market. He whipsawed EUR/USD in the last rate decision press conference.
- G20 Meetings: Thursday. April 18-19, G20 meetings attended by finance ministers and central bankers from 20 industrialized nations including the G7 nations will meet in Washington DC to discuss global financial issues and form global policies. You can see a nice infographic about the G-20 meetings here.
- German PPI: Friday, 7:00. German producer prices for industrial products eased by 0.1% in February after climbing a 0.8% in January. Analysts expected a 0.2% climb. However, on a yearly base PPI increased 1.2%.A rise of 0.2% is forecasted.
- Current Account: Friday, 9:00. The euro zone’s current account surplus narrowed in January to 14.8 billion, after reaching a record high of 16 billion in December. In the euro zone’s non-seasonally adjusted financial account, combined direct and portfolio investment showed net inflows of EUR22 billion in January, after net outflows of EUR12 billion the previous month. A further decline to 13.9 billion is expected.
- IMF Meetings: Fri-Sat. The IMP Spring meeting will include thousands of government officials, journalists, civil society organizations, and invited participants from the academia and private sectors. World Bank-IMF Development Committe and the IMF’s International Monetary and Financial Committee, will discuss progress on the work of the World Bank and the IMF.
*All times are GMT
EUR/USD Technical Analysis
Euro/dollar started the week trading between the 1.2960 and 1.30 lines (mentioned last week). It then advanced gradually, eventually meeting resistance at 1.3140 before retreating to close at 1.3111.
Live EUR/USD chart:
Technical lines from top to bottom:
1.34 was a stubborn cap during the spring of 2012 and continued its stubborn stance in January 2013 – the line now serves as resistance. These are the head and shoulders lines. 1.3350 was a peak in January 2013 and worked very nicely as support during February. The line is weaker now.
Below, 1.3290 served as resistance before the pair collapsed in May, After many failures to break higher, the euro finally pushed through. 1.3255 provided support during January 2013 and also beforehand. A recovery attempt failed to reconquer this line.
1.3170, which was the peak of September, served as support for the pair after the break in December and worked as strong resistance after the Italian elections. This is a key line, now on the upside. 1.3140 capped the pair during April, and it safeguards 1.3170.
1.3100 is a minor line after working as temporary resistance in December 2012. It is followed by 1.3050, which capped the pair in early April and also had a role beforehand.
The very round 1.30 line was a tough line of resistance for the September rally. In addition to being a round number, it also served as strong support. It is becoming stronger. 1.2960 provided some support at the beginning of the year and also in September and October – the line is strengthening once again after working as a triple bottom. It remains an important line.
Lower, 1.2880 worked in both directions during 2012 and was the beginning of the uptrend support line. The recent breakdown turned the line into strong resistance. Lower, 1.2805 was the bottom border of the wide 1.2805-1.3170 that characterized the pair’s trading for a long time.
Below, 1.2750 worked as a separator of ranges during November, and stopped the pair’s drop in March. This is a key line on the downside, as clearly shown in the first week of April. This is followed by the round number of 1.27, which is minor as
I turn bearish on EUR/USD
After the pair enjoyed the comprehensive QE program from Japan, it may be time to turn back. The strength of the euro worries policymakers in Europe, and the weakening of the yen isn’t liked by Washington. European indicators are far from shining, and they are likely to weigh on the common currency, as the pair nears the important 1.3170 level, even if US data has significantly worsened.
More technical analysis: EUR/USD Stalls Climb Around 38% Retracement Level by James Chen.
If you have interest in a different way of trading currencies, check out the weekly binary options setups, including EUR/USD and more. Further reading:
- For a broad view of all the week’s major events worldwide, read the USD outlook.
- For the Japanese yen, read the USD/JPY forecast.
- For GBP/USD (cable), look into the British Pound forecast.
- For the Australian dollar (Aussie), check out the AUD to USD forecast.
- USD/CAD (loonie), check out the Canadian dollar forecast