EUR/USD managed to recover from a dip lower and remain on high ground. What is the next move for the pair? Flash manufacturing and services PMIs, and German Producer price index are the main events on our calendar. Here are the market movers for the coming week and an updated technical analysis for EUR/USD.
Gross domestic product of the Euro area increased for the first time since the third quarter of 2011, rising 0.3% in the second quarter. The positive release indicates the region is out of recession. Germany and France rebounded strongly and a substantial improvement was shown in Italy and Spain. Germany grew by 0.7% following a small rise of 0.1% in the first quarter and France exited its recession and with a bang, jumping 0.5% in the second quarter. Further good news came from German ZEW Economic Sentiment rising to 42 points from 36.3 in June. These encouraging figures clearly show recession is over however the Euro-zone is not out of the woods yet. In the US, key employment and inflation figures were good and supported tapering in September, but this wasn’t enough for the greenback.Updates:
- German PPI: Tuesday, 6:00. German Producer price index remained unchanged in June, after a 0.3% fall in May, but came in higher than the 0.25 decline forecast. On annual bases, prices grew 0.6% following a 0.2% increase in May. A gain of 0.2% is forecast this time.
- Flash Manufacturing and Services PMIs: Tuesday. Euro zone private industry unexpectedly gained traction in July with positive data across the board, indicating recovery may be underway. The flash manufacturing PMI crossed the 50 point line for the first time in two years, coming in at 50.1, beating forecasts for a 49.1 reading and higher than June’s 48.8. Meanwhile PMI for the service sector soared to 49.6 from 48.3 in May, approaching expansion. German business activity soared to a 5 month high with a rise to 52.5 in the service sector, following 50.4 in the previous month, while manufacturing was also higher at 50.3 in July, compared with 48.6 a month earlier. In France business slump has moderated with a rise to 49.8 in the manufacturing sector, compared to 48.4 in June and an improvement to 48.3 in the service sector following 47.2 in June. Economists forecast another improvement in the PMIs: French Manufacturing 50.4, French services 49.3, German Manufacturing 51.1, German services 51.7, Eurozone Manufacturing 50.9, Eurozone Services 50.2.
- German Final GDP: Friday, 6:00. German private consumption boosted growth by 0.1% in the first quarter, following the same rise in the final quarter of 2012. Rising wages also contributed to the increase in spending. Germany is outperforming other euro zone countries, and recent data showed its industrial output and orders, as well as imports and exports, rose in March. A further expansion of 0.7% is expected now.
- Belgium NBB Business Climate: Friday, 13:00. Belgian business confidence, edged up slightly in July, better than the -11.2 forecast, following -12.8 in the previous month. The index was stuck in a range between -11 and -15 for the past 12 months, indicating economic sluggishness. A slight improvement to -11.1 is projected.
- Consumer Confidence: Friday, 14:00. Consumer climate in the euro zone advanced more than expected in July, rising to -17, its highest level in almost two years, from -19 in the previous month. Sentiment was much improved thanks to better manufacturing data, suggesting recovery in the second half of the year. No change is expected.
*All times are GMT
EUR/USD Technical Analysis
Euro/dollar began the week with a drop to find support at 1.3280, a line that joins the chart and didn’t appear last week. It then fell further but quickly leaped back up. The pair was unable to hold onto high ground and eventually ends the week just marginally higher.
Technical lines from top to bottom:
1.37 was the 2013 peak, and is still far. 1.3590 capped EUR/USD back in February and is minor resistance.
1.3520 was a swing high in February, before the pair tumbled down. 1.3480 was part of a head and shoulders pattern seen in January and February.
1.3415 was the peak back in June and serves as a strong line of resistance. Beyond this line, it’s a 6 month high. 1.3350 provided support when the pair traded higher in February and weakens now.
1.3280 worked as a good separator of ranges in August 2013 and is now an important line on the downside. It is followed by 1.3240, which capped the pair in April and also had a role in August.
1.3175 capped the pair during July 2013 and works as another line of defense for any moves to the downside. It proved its strength during July 2013 . 1.3100 is worked as temporary resistance in December 2012 and is becoming more important once again, after capping a recovery attempt in June and then in July.
It is followed by 1.3050, which proved be strong support in May 2013, defending the round number in more than one occasion, but it is less significant now.
The very round 1.30 line was a tough line of resistance. In addition to being a round number, it also served as strong support and recently worked as a pivot line. 1.2940 is the next line of support. It worked as such during April and May 2013.
Lower, 1.2890 worked in both directions during 2012 and was the beginning of the uptrend support line. It is becoming more important, as a clear separator of ranges. 1.2840 worked as a cushion for the pair during May 2013.
Since mid July the pair trading along an uptrend support line, which it touched three times (black line). It is also interesting to note lower highs since the peak of 1.3415 in June.
I turn from neutral to bearish on EUR/USD
While the euro-zone returned to growth, the region is far from being out of the woods and there are concerns coming from everywhere (here are 4 reasons). Until the German elections, Merkel will probably continue ignoring the need for another Greek haircut.
In the US, not everything is rosy, but employment continues improving and inflation isn’t getting in the way. Currently a “Septaper” is a close call for the Fed and the markets. Will markets begin pricing it in after the FOMC meeting minutes?
More on EUR/USD:
- EURUSD: Upside Pressure Remains With Eyes On The 1.3400 Level. – by FX Tech Strategy
- EUR complacency deepening – by Justin Pugsley
If you are interested 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