EUR/USD fell to lower ground but yet again staged a late recovery to minimize its losses, remaining within the narrowing channel. Will this pattern continue? GDP numbers and a key German survey are the highlights of a busy week. Here is an outlook on the highlights of this week and an updated technical analysis for EUR/USD.
ECB President Mario Draghi gave a little for everybody in his press conference: on one hand, he continued seeing inflation returning back to course and was not worried about growth, that looks weak in his country, Italy. On the other hand, he did stress that preparations are intensifying towards a QE program and also explained why EUR/USD should fall. The euro also suffered from weak German industrial numbers and fear of the recent escalation in relations with Russia. In the US, a solid services PMI and encouraging jobless claims numbers supported the USD. However, yet again we have seen profit taking on the greenback late in the week.Updates:
EUR/USD daily graph with support and resistance lines on it. Click to enlarge:
- German ZEW Economic Sentiment: Tuesday 9:00. German investor and analyst climate declined in July for a seventh straight month reaching 27.1 from 29.8 in June. This was the lowest reading since December 2012, amid political tensions in the Middle East. Analysts expected sentiment to reach 28.9. ZEW President Clemens Fuest stated Germany’s economic activity over went a “slight dent” but the medium-term economic outlook remains positive. German investor sentiment is expected to worsen to18.2.
- ZEW Economic Sentiment: Tuesday 9:00. The euro zone, the ZEW economic sentiment index edged up to 61.8 in July, from a reading of 58.4 in June, lower than the 62.3 points reading estimated by analysts. Despite this rise, there still remains a deteriorating perception on the strength of the Eurozone’s recovery. Inflation remains low while recent manufacturing and industrial production numbers have disappointed across the board. The Euro area economic sentiment is expected to decline to 41.3.
- German Final CPI: Wednesday, 6:00. German CPI flash estimate remained unchanged in the final data for the month, rising 0.3%. The annual inflation rate increased to 1.0% slightly better the in the previous month. However the rate in inflation remains too low for comfort. German final CPI is expected to remain at 0.3%.
- French CPI: Wednesday, 6:45. In June 2014, the Consumer Prices remained unchanged for the third consecutive month, rising 0.5% in the year to June 2014, down from 0.7% in April and May 2014. Overall, in June, the decline in manufactured product prices was offset by an increase in services prices. Moreover, prices of food and those of energy declined in June 2014. French CPI is predicted to decline 0.2%.
- Industrial Production: Wednesday, 9:00. Industrial output in the Eurozone declined 1.1% in May, after posting a 0.7% gain in April. Analysts expected a 0.3% rise in May. On a yearly base, factory gate output expanded by 0.5%, in line with market forecast, after a 1.4% increase in April. This decline highlights the fragile state of the Eurozone’s recovery. Industrial production in the Eurozone is expected to rise 0.5% this time.
- GDP data: Thursday. The Eurozone economy expanded mildly in the first quarter, building expectations for drastic move from the European Central Bank. Output advanced 0.2% after a 0.3% rise in the previous quarter. The reading was worse than the 0.4% growth rate forecasted by analysts. French flat growth rate was the major blame for the weak expansion in the Euro area. France failed to execute economic reforms which helped other Euro member countries. The Eurozone 0.2% growth was attributed to the 0.8% expansion in Germany and the 0.4% increase in Spanish GDP. France is expected to post a 0.1% growth rate, Germany’s economy is expected to contract 0.1%, and the Eurozone is expected to register a growth rate of 0.4%.
- French Non-Farm Payrolls: Thursday, 6:45. French non-farm payrolls, dropped 0.1% in the first quarter, in line with market forecast. NFP advanced 0.1% in the last quarter of 2013. Goods-producing industries declined 0.3%, construction sector dropped 0.4%and services edged down 0.1%. French non-farm payrolls is expected to decline 0.1% this time.
- ECB Monthly Bulletin: Thursday, 8:00. The European Central Bank said in its July monthly bulletin release that measures taken in June are expected to raise the inflation rate to around 2%. Furthermore, the Central bank is ready to take “unconventional measures” if required, to boost economic growth while maintaining rates at historic lows for a long period of time. Bigger lines of credit will help smaller businesses to recuperate in the second quarter.
- Inflation data: Thursday, 9:00 According to the flash estimate, euro zone inflation dug even lower, to 0.4%. A sharp decline in food and phone calls offset more expensive tobacco and restaurants. The annual inflation is far below the 2.0% target. Consumer prices fell in quite a few countries. Core annual inflation excluding the volatile prices of energy and unprocessed food reached 0.8%, unchanged from the previous month. These numbers will likely be confirmed now.
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar traded lower throughout the week, and bounced only a few pips above the 1.3325 line (mentioned last week) . A late recovery saw the pair reconquer the round number of 1.34, but the week still ends with a slide.
Live chart of EUR/USD:
Technical lines from top to bottom:
The round number of 1.37, is another support line after capping the pair in December yet it is weakening. 1.3677 was the peak in June so far, and could turn into important resistance.
1.3650 worked as strong resistance during May and June but is weakening now. 1.3585 served as the bottom of the range and still carries weight despite the breakdown in June. 1.3550 worked as support in January but is now weakening.
The round number of 1.35 worked as the last cushion in June and is strong also due to the roundness. 1.3450 worked as resistance in August 2013 and as support in September and October. It is now a key line on the upside.
The round number of 1.34 was last seen in December as a stepping stone for the pair on its way down. Below, the next line of support is only at 1.3325, a level that separated ranges back in September 2013.
1.3295 is the next line: it was the low level in November. Below this line the round number of 1.32 is the important due to its role in August 2013.
Narrowing downtrend channel
As the thick black lines on the chart show, the pair is trading within two downtrend lines in recent months. Downtrend resistance, that begins from the near 1.40 peak and was mentioned here before is quite far from the line at the moment. Downtrend support accompanies the pair from May and was formed in June. The pair is in the middle of the channel.
I remain bearish on EUR/USD
Draghi not only wants a lower euro, but also went ahead and gave us the reasons. Together with accelerated preparations for a QE program and Russian sanctions, the euro is set for more losses. A lot depends on GDP numbers, that do not look too promising. In the US, more signs of job growth are encouraging and we might get some more from lagging, yet important, JOLTS report.
- 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
- For the kiwi, see the NZDUSD forecast.