EUR/USD Forecast August 1-5

EUR/USD  drifted close to 1.10 during most of the week but was propelled higher on USD weakness. Is it breaking out of range? The upcoming week features PMIs as well as other figures. Here is an outlook for  the highlights of this week and an updated technical analysis for EUR/USD.

The  Brexit ramifications are not so terrible for Germany according to IFO. GDP came out as expected at 0.3% and inflation beat predictions with +0.2%, giving a bit of hope for the ECB. The EBA stress tests did not tell us something we didn’t know. In the US, the Fed  was more upbeat but did not provide a hint for a hike. The bigger blow for the greenback came from a poor GDP report: only 1.2% in  comparison to 2.6% expected.

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

1. Manufacturing PMIs: Monday, 7:15 for Spain, 7:45 for Italy, 7:50 final figure for France, 7:55 final figure for Germany and at 8:00, the final euro-zone figure. According to Markit, Spain’s manufacturing  sector was  growing in June at a moderate pace, with 52.2 points, above the 50 point threshold separating expansion and contraction. 51.6 is expected now. Italy, the continent’s third-largest economy, saw 53.5 points. A drop to 52.5 is on the cards. According to the preliminary figure for France for July, the sector was contracting with 48.6 points. Germany, the continent’s largest economy, saw expansion worth 53.7 points. The euro-zone figure was 51.9 points. The initial figures are expected to be confirmed.
2. Spanish Unemployment Change: Tuesday, 7:00. In June, the  unemployment hit country saw a much-needed drop of 124.3K in the number of the jobless. July could also see a drop, as it is at the  height of the tourism season. -70K is expected.
3. PPI: Tuesday, 9:00. Producer prices eventually feed into consumer prices. A rise of 0.6% was seen in May. A rise of 0.4% is predicted.
4. Services PMIs: Wednesday,  7:15 for Spain, 7:45 for Italy, 7:50 final figure for France, 7:55 final figure for Germany and 8:00, final euro-zone figure. In June, Spain saw strong expansion in the services sector, with 56 points. 55.1 is expected now. Italy was behind with 51.9 points and a drop to 51.1 is what markets are looking for now. According to the first release for July,  the French services sector hardly grew with 50.3 points. Germany saw 54.6 points and the whole euro-zone was at 52.7 points.  The data for the euro-zone and France is expected to be confirmed while the euro-zone number carries expectations for an upgrade to 52.8 points.
5. Retail Sales: Wednesday, 9:00. Despite being released after data had already been released from the largest economies, the all-European numbers have an impact. A rise of 0.4% was seen in May. No change is expected now.
6. ECB Economic Bulletin: Thursday, 8:00. The European Cental Bank releases the economic data  the members had before their eyes when making  the recent decision. It  contains updated views about inflation, employment and more.
7. Retail PMI: Thursday, 8:10. According to this purchasing managers’ index from Markit, the retail  sector has been in contraction in June, with 48.5 points.
8. German Factory Orders: Friday, 6:00. The continent’s largest economy saw a stagnation in orders from factories in May. A bounce of 0.5% is  expected now. Note that these numbers tend to be volatile.
9. French Trade Balance: Friday, 6:45. The second largest economy in the euro-area has a deficit in its trade balance. It has been 2.8 billion in May. A wider deficit of 3.9 billion is expected now.

* All times are GMT

EUR/USD Technical Analysis

Euro/dollar  seems to really like the 1.10 line (mentioned last week). It then marched higher, getting close to resistance at 1.1190.

Technical lines from top to bottom:

1.1535 is a stepping stone as seen in May 2016 and also beforehand. It is followed by the very round level of 1.15.

1.1460 was a key resistance line in 2015 and 1000 above the multi-year lows. 1.1410 capped the pair in early June. 1.1375  worked as resistance in February and as support in May 2016.

1.1335 worked as the lower bound of a higher range and then capped recovery attempts in May.  1.1230 capped the pair after the fall in May and works as resistance.

1.1190 is the post Brexit high seen in July. 1.1140 cushioned the pair in October.  1.1070  served as a clear separator of ranges during February and also beforehand.

1.10 is a round number and  significant resistance. 1.0905 is the swing low seen in June and serves as weak support. 1.0825 worked as support in early March 2015 and  should also be watched. This is now a triple bottom.

The post-Draghi low 1.0780 replaces 1.08 as support.  1.0710 is the  next support line on the  chart after temporarily capping the pair in April 2015.

Further below, the 2016 low of 1.0520 and the 2015 low of 1.0460 provide further support.

Breaking above the downtrend channel

As the thick black lines show,  the pair traded in a downtrend channel and has now broken above it. The breakout awaits confirmation.

I am neutral on  EUR/USD

Europe’s banking problems are far from being solved also inflation remains in issue.  However, the weak  GDP data from the US is a reason to  pause and think about the future of rates. All in all, things could remain balanced.

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