EUR/USD had a roller coaster week, flirting with low support only to come back as a winner. Industrial Production in Germany, France and the Eurozone as well as, the Eurogroup and ECOFIN Meetings are the major events this week. Here is an outlook on the main events and an updated technical analysis for EUR/USD, which is just under 1.30.
Last week, the European Central Bank left interest rates unchanged as expected. The roller coaster came during the press conference, where Draghi hinted about a rate cut, in May or June, but also provided a firm commitment to the euro project. The ECB still believes the Eurozone will strengthen this year, but will keep a close watch the economy, to see if conditions continue to worsen. In light of a monetary blitz from Japan and no near end in sight to QE in the US after the poor Non-Farm Payrolls report, the euro is certainly supported.
Updates: Eurozone Sentix Investor Confidence dropped to -17.3 points. This was well below the estimate of -12.6 points. German Industrial Production gained 0.5%, edging past the estimate of 0.4%. German Trade Balance also looked solid, posting a surplus of 171. billion euros. The estimate stood at 16.2 billion euros. The French Government Budget Balance saw the deficit balloon to 27.1 billion euros, from 12.8 billion the previous month. The French Trade Deficit rose slightly to 6.0 billion euros, missing the forecast of 5.3 billion euros. EUR/USD continues to push higher, as the pair was trading at 1.3060. French Industrial Production rose 0.7%, edging past the estimate of 0.6%. Italian Industrial Production dropped 0.8%, missing the estimate of -0.4%. German Final CPI came in at 0.5%, matching the forecast. French CPI gained 0.8%. The estimate stood at 0.7%. The ECB released its Monthly Bulletin on Thursday. The markets are waiting for the release of Eurozone Industrial Production on Friday. EUR/USD has crossed above the 1.31 line. The pair was trading at 1.3114.
- Sentix Investor Confidence: Monday, 9:30. Euro zone sentiment plunged in March to -10.6 from -3.9 in February stopping a six-month rise, due to the inconclusive election in Italy. However investor sentiment in Germany, improved in March, highlighting the differences between the euro zone’s largest economy and its weak, debt-ridden southern periphery. A further decline to -12.6 is expected now.
- German Industrial Production : Monday, 11:00. German industrial output remained unchanged in January, with expansion in the construction sector evened by drops in the energy and manufacturing industries. this figure as well as related data imply that industrial orders unexpectedly contracted in January, indicating the ongoing weakness in the euro zone’s largest economy. A gain of 0.4% is anticipated.
- German Trade Balance: Tuesday, 7:00. Germany’s trade surplus narrowed in January to 15.7 billion, amid a growth in imports. Exports also increased but there was a fall in manufacturing orders. Nevertheless, leading indicators like the Ifo business climate index shown a sharp rebound at the beginning of 2013, but there were also missed figures. Trade surplus is expected to grow to 16.2 billion.
- French Gov Budget Balance: Tuesday, 7:45. The central government budget deficit narrowed to 12.8 billion in January from a deficit of 87.2 billion in December. However the reading was worse than the 12.5 billion deficit registered last January. France is struggling with rising unemployment, piling pressure on President Francois Hollande who has pledged to reverse the upward trend by year-end.
- French Industrial Production: Wednesday, 7:45. French industrial production contracted 1.2% in January, from a 0.9% rise in December, due to weak auto and agri-food production. This was the sharpest fall since September, missing forecasts for a minor decline of 0.1%. A rise of 0.6% is forecasted.
- Italian Industrial Production: Wednesday, 9:00. Italian industrial output surprised with a rise of 0.8% in January after four consecutive monthly of decline, The reading was contrary to predictions of a 0.3% fall. However ISTAT said the sharp rise in January was probably linked to monthly volatility linked to a re-basing of the index. Therefore it is unlikely that this rebound will continue in the coming months. A contraction of 0.4% is anticipated this time.
- French CPI: Thursday, 6:30. French consumer prices increased less than expected in February gaining 0.3% after a 0.5% contraction in January. Economists expected a rise of 0.5%, but lower seasonal rises reduced the CPI rise. Another increase of 0.7% is expected.
- ECB Monthly Bulletin: Thursday, 9:00. In the March release of the European Central Bank bulletin, it was stated that the recent Euro strength is a downside risk to inflation, but inflation risks are broadly balanced. The ECB forecasts that inflation will not exceed the 2% level in the coming months. In addition, medium and longer term expectations are in line with the 2% ECB target.
- German WPI: Friday, 7:00. Wholesale Price Index rose mildly by 0.1% in February, lower than the 0.4% increase predicted by analysts, and following a 0.3% increase in January. On an annual basis the German Wholesale Price Index rose 1.4% in February, compared with 2.3% the previous month. A bigger rise of 0.3% is forecasted now.
- Industrial Production: Friday, 10:00. Industrial production in the 17 countries sharing the euro declined more than expected at the beginning of 2013 contracting 0.4%, after a 0.9% gain in December. Production in France and Germany fell indicating the EU is struggling to emerge from recession. Some analysts believe the ECB should respond to these weak figures and cut rates even further. A gain of 0.3% is predictednow.
- Eurogroup Meetings: Friday. The finance ministers of the 17- nation euro-area will meet in Dublin to discuss the aid program for Cyprus. The memorandum of understanding reached with Cyprus has to be met in order to continue with the aid plan. The Eurogroup discussions will also include the loan program for Greece, the direct recapitalization of banks out of the European Stability Mechanism, and the outcome of the latest mission of the troika to Ireland to review payment of a new tranche out of the European Financial Stability Facility.
- ECOFIN Meetings: Saturday. The Eurogroup is a meeting of the Finance Ministers of the Member States using the Euro. ECOFIN meeting focuses on current economic and financial issues and is composed of two joint working sessions as well as working lunches. The Irish Presidency will host the informal ECOFIN in April 2013 where the working sessions will take place in the Dublin Castle Conference Center.
*All times are GMT
EUR/USD Technical Analysis
Euro/dollar began the week trading in a range, capped by the 1.2880 line (mentioned last week). Everything changed on Thursday, as Draghi sent the pair to dip just below support at 1.2750 (a 4.5 month low) only to swing higher. The 1.2960 line capped EUR/USD at first, but it eventually rose towards 1.3050 before closing just under 1.30.
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. 1.3130 proved to be strong resistance during December 2012 showed its strength in March 2013 as well.
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
A more important line is the trough of November 1.2660. 1.2624, which was a bottom in January 2012 is the next significant line, especially when looking at the weekly chart. Further below, 1.2587 is worth mentioning.
As shown on the graph (think black line), EUR/USD is sliding on downtrend support since late February. The pair escaped this line.
I am neutral on EUR/USD
The euro is stuck in an ugly contest between the European issues on one hand, and the monetary easing from the US and Japan.
The new governor of the BOJ announced a very comprehensive plan to fight deflation, and this already hit the yen. It is expected to cause outflows from Japan and into the euro-zone among other regions. In the US, the picture has worsened: after signs of an accelerated recovery, we witness a significant slowdown that culminated in the disappointing jobs report.
However, things aren’t improving: repercussions of the crisis in Cyprus, a funding gap in Portugal, a delayed troika report in Greece, issues in Slovenia, a fear of a recession in Germany and an ongoing political crisis in Italy are all weighing on the euro-zone, which now suffers an unemployment rate of 12%. These two forces could balance each other in the coming week. A rate cut in Europe (which Draghi hinted about) could tip the weight towards a weaker euro later on.
More technical analysis: EUR/USD Bearish Trend Drops to 50% of Prior Bullish Trend 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