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Roller coaster does not begin to describe the week that  EUR/USD  underwent. A leap to highs unseen in months continued with big fall. Volatility is set to continue as traders return to their desks and the ECB makes its statement. Apart from Draghi we also have employment, inflation and PMI data.  Here is an outlook for  the highlights of this week and an updated technical analysis for EUR/USD.

The fear that gripped markets continued helping the euro. The common currency has become a funding one and that was clear with the leap above 1.17. However, this didn’t last too long: not only the Fed can be more dovish but also the ECB. A hint about monetary stimulus and a rebound in atmosphere and stocks sent the pair down. Also a better than expected GDP read from the US helped the dollar regain its strength. In the euro-zone, the solid German business sentiment helped the euro early in the week while other figures  did not surprise. Another exciting week awaits us. Let’s start:

[do action=”autoupdate” tag=”EURUSDUpdate”/]

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

EURUSD August 31 September 4 2015 technical analysis euro dollar fundamental outlook and sentiment

  1. German Retail Sales: Monday, 6:00.  Consumer activity at the euro-zone’s core country disappointed with a big fall of 2.3% in June. German demand is critical for the whole area. A rebound is on the cards now.
  2. Flash CPI: Monday, 9:00. These figures are critical for the ECB decision later on. In July, inflation remained low at 0.2% y/y while core inflation was initially set at 1% before the final read of 0.9%. This data was somewhat encouraging for the ECB: low oil prices still impact headline inflation while underlying demand that effects core prices is better. In August, we had the big crash in oil and that could weigh on headline inflation. However, expectations stand on +0.2% for the headline number and 1% on core inflation.
  3. Manufacturing PMIs: Tuesday morning: 7:15 for Spain, 7:45 for Italy, 7:50 for France (final), 7:55 for Germany and the final euro-zone read at 8:00. According to Markit, Spain, the zone’s 4th largest economy, has seen OK growth in July, with a score of 53.6 points. A rise to 53.9 is on the cards now. Italy, the third largest economy, enjoyed stronger growth at 55.3 and another advance to 56.2 is expected. France remained in contraction  territory in August according to the preliminary read: a score of 48.6 which is below the 50 point mark separating growth and contraction. Germany countered that with 53.2 and the overall score stood at 52.4 points. The last 3 numbers will likely be confirmed.
  4. German employment change: Tuesday, 7:55. In June, the area’s locomotive disappointed with a rise in  unemployment: 9000 were added to the unemployment lines. The country enjoyed improving conditions for many months. Has the tide turned? At least for now, a drop of 5K  is predicted, making the rise last time a one off, if this forecast is realized.
  5. Unemployment rate: Tuesday, 9:00. While the jobless rate is below the highs, it is still quite troubling at 11.1% in June, refusing to drop. The economic growth is not really reflected in jobs. No change is expected.
  6. Spanish Unemployment Change: Wednesday, 7:00. Spain  still suffers an unemployment rate of over 20% but the situation has improved. The early release of employment figures draws attention despite its seasonality. After a fall of 74K unemployment in July a similar number is on the cards for August.
  7. PPI: Wednesday, 9:00. Producer prices eventually feed into consumer prices. A slide of 0.1% was seen in June and a bigger one is on the cards for July, mostly due to commodity prices. A drop of 0.1% m/m is forecast.
  8. Services PMIs:  Thursday  morning: 7:15 for Spain, 7:45 for Italy, 7:50 for France (final), 7:55 for Germany and the final euro-zone read at 8:00. The services sector is doing better than the manufacturing one, and this is most evident in Spain, which enjoyed a strong growth rate according to Markit, with a score of 59.7 points in July. A similar number of 59.3 is expected. Italy has seen weak growth with 52 points in July and an advance to 53.1 points is likely. The preliminary read for August showed growth in France with 51.8 points and an even better one in Germany with 53.6 points. The whole euro-zone scored a healthy growth rate of 54.2 points. The last three numbers will likely be confirmed.
  9. Retail sales: Thursday, 9:00. Consumers in the euro-zone bought less in June with a drop of 0.9%, led mostly by Germany. Despite being released after the German figure, this publication still has a significant impact. A rise of 0.6% is expected.
  10. ECB decision: Thursday, 11:45, press conference at 12:30. The ECB is not expected to change policy right now: interest rates have reached their “lower bound” according to the Bank and QE is achieving some results in monetary easing and indirectly a weaker euro. However, the recent market turbulence has already sparked a comment hinting about further stimulus. Will the ECB announce an acceleration of its QE program beyond 60 billion euros / month or its time frame beyond September 2016? This could officially help the economies and basically serve as a participation of the ECB in currency wars. A rise in the euro is undesired as the recovery is fragile. A change in policy is not expected, but President Mario Draghi could hint about the potential to act, putting his weight on the euro.
  11. German Factory Orders: Friday, 6:00. This volatile indicator enjoyed a surprisingly strong rise of 2% in June and could cool down now with a drop of 0.5%.
  12. Retail PMI: Friday, 8:10.  After long months below the 50 point mark, this indicator of consumption climbed to growth territory in May and reached 54.2 points in July. Is the momentum still with us? We may see a slide now.
  13. Revised GDP: Friday, 9:00. According to the preliminary figure, the euro-zone economies grew by 0.3% in Q2. This was slightly worse than predicted.  No revision is expected now.

* All times are GMT

EUR/USD Technical Analysis

Euro/dollar  kicked off the week by extending its gains and  reaching a  very high peak of 1.1712. It then turned all the way down and bottomed out around the 1.1215 level mentioned last week.

Live chart of EUR/USD: [do action=”tradingviews” pair=”EURUSD” interval=”60″/]

Technical lines from top to bottom:

Due to extreme volatility, we start from higher ground this time: 1.1875 was the low seen in 2010 and also capped the pair earlier this year. The August high of 1.1712 is the next line.

1.1680 capped the pair in January on its way down.  The next line is a clear separator of ranges: 1.1535. It was last seen in January as well.

The very round 1.15 level is of importance thanks to its psychological role. It is closely followed by 1.1460 that served as resistance earlier in the year.

The historic line of 1.1373 (from November 2003) still  has a role as resistance. 1.1290, which was a peak in April and support in February is significant resistance.

1.1215, which capped the pair both in June and in August is clear resistance. It is followed by a low seen in  January  of 1.1113 which is nearly 0.90 on USD/EUR.

1.1050 returns to the chart after serving as a stepping stone for the pair to rise to higher ground. 1.0950 is a pivotal line in the range.

1.0865 provided some support in late May and is weak support before a stronger line: 1.0810, which was the bottom in July also nicely coincides with the low seen in May and is strong support..

The next line is  1.0760, which was the low point in both July and August 2003. 1.0715 joins the chart after temporarily capping the pair in April 2015.

I am bearish  on EUR/USD

We’ve seen the euro rally hard on its new role as a safe haven currency, enjoying trouble at home and around the world. A potential delay in the Fed hike and the Chinese yuan  devaluation (with the accompanying stock market crash)  strengthened the common currency. Yet also the ECB can play this game. Draghi is likely to show that also the ECB still has monetary stimulus tools in his shed. And in Europe’s case, every little bit helps as the economy is still fragile. In addition, after we had a washout of euro shorts, positioning is probably more  favorable for a renewed downturn.

In our latest podcast we explain what’s going on with EUR and China before previewing the big events ahead:

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