EUR/USD suffered for yet another week, dropping to an 11 month low and dipping below long term downtrend support. What’s next for the common currency? A key German survey and all important inflation figures are the highlights of this week. Here is an outlook on the highlights of this week and an updated technical analysis for EUR/USD.
Euro-zone PMIs were quite mixed, but still pointed to some weak growth, despite the already visible impact of the tensions with Russia on the economic zone. In the US, a USD rally that commenced with strong housing data intensified with the not-too-dovish FOMC minutes. At Jackson Hole, Yellen did not say anything new, and this allowed yet another fall in EUR/USD. Is this divergence set to continue setting the tone?Updates:
EUR/USD daily graph with support and resistance lines on it. Click to enlarge:
- German Ifo Business Climate: Monday, 8:00. German business confidence fell more than predicted in July reaching 108, after posting 109.7 points in the previous month. This was the third consecutive decline and the lowest release since October 2013, amid weaker growth and rising tensions in Ukraine. Analysts expected a minor decline to 109.6. The Bundesbank forecasts a growth rate of 1.9% this year and a 2% expansion rate in 2015. Business climate is expected to drop to107.1 .
- GfK German Consumer Climate: Wednesday, 6:00. German consumer climate soared to its highest level in more than 7-1/2 years, reaching 9.0 points in July, amid consumers’ positive economic outlook. The reading was better than the 8.9 reading posted in the previous month and higher than the 8.9 reading expected by analysts, indicating domestic demand continues to expand. Consumer climate is expected to decline slightly to 8.9 points.
- German CPI: Thursday. Consumer prices increased 0.3% in July, rising higher than the 0.2% gain expected by analysts. However, the annual inflation rate fell to 0.8%, its slowest pace since February 2010. The main contributors for the price rise in July were the leisure and entertainment sector. The relatively low inflation rate in Germany is a problem for the ECB trying to lift recovery in the Eurozone. Consumer prices are expected to remain unchanged this time.
- Spanish Flash CPI: Thursday, 7:00. Consumer price inflation in Spain declined to negative territory in July, dropping 0.3% from a 0.12% gain in June. Analysts expected CPI to rise 0.2% in July. The negative reading increase concerns of deflation in the Eurozone fourth largest economy. Consumer price inflation in Spain is expeted to decline 0.2%.
- German Unemployment Change: Thursday, 7:55. German jobless claims declined by 12,000 in July after rising 9,000 in June. Analysts expected a much lower fall of 5,000. The Unemployment rate remained 6.7% and is not expected to change in the near future. The strong employment market continues to boost domestic demand and economic growth. German jobless claims are forecasted to decline by 6,000.
- M3 Money Supply and Private Loans: Thursday, 8:00. Money supply in the Euro area grew 1.5% in June from 1.0% in May, while lending to households and firms declined less than expected by1.7% after a 2.0% fall in the previous month. The ECB started charging banks on overnight deposit in order to speed up lending. The slower decline in loans may be a positive step in the right direction. Money supply is expected to grow1.5% ,while Private Loans are predicted to decline 1.5%.
- German Retail Sales: Friday, 6:00. German retail sales advanced more than expected in June, rising 1.3% from a 0.6% decline in May. The reading was higher than the 1.1% gain forecasted by analysts. On an annual basis, retail sales edged up 0.4% in June. Low unemployment, low inflation and less uncertainty from the euro-zone raised household moral boosting consumer spending. German retail sales are expected to gain 0.1% this time.
- CPI Flash Estimate: Friday, 6:00. Inflation in the Eurozone dropped in July to its lowest level since 2009, reaching 0.4%, following 0.5% in June, despite a moderate decline in the unemployment rate, suggesting some improvement in the Euro area recovery and a possible boost to inflation in the coming weeks. Economists expected a higher gain of 0.5%. Meanwhile, core prices food, energy, alcohol, and tobacco remained unchanged in July at 0.8%, in line with market forecast. Inflation is expected to rise 0.3% in August.
- Unemployment Rate: Friday, 9:00. The Eurozone unemployment rate improved in June to 11.5% from 11.6% in May offering some consolation after the extremely weak inflation rate posted in July. Economists expected the unemployment rate to remain at 11.6%. The lowest rate was Austria’s 5%, followed by Germany’s 5.1%. At the other end of the scale, unemployment reached 27.3% in Greece and 24.5% in Spain. The total number of unemployed in the 18-member bloc fell by 152,000 over the month, to 18.4 million. The Eurozone unemployment rate is expected to remain at 11.5%.
* All times are GMT
EUR/USD Technical Analysis
Live chart of EUR/USD:
Technical lines from top to bottom:
We start from lower ground this time. 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 1.3415 level managed to cap the pair in August and serves as a barrier before 1.3450. Below, the next line of support is only at 1.3333, a level that worked as a cushion to the pair during August and just above 1.3325 that separated ranges back in September 2013.
1.3295 is the next line: it was the low level in November. Even lower, 1.3250 was a stepping stone for the pair when it was on its way up in 2013.
Below this line the round number of 1.32 is the important due to its role in August 2013. 1.3175 worked in both direction during 2013.
Below, the round number of 1.31 served as resistance several times, and the all important figure below is 1.30.
Broken downtrend support
As the thick black lines on the chart show, the pair broke below the downtrend support and left the channel. 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.
I remain bearish on EUR/USD
While a correction could come after the big fall, it could be temporary. The dovish ECB and the already not-too-dovish Fed gap is becoming more reflected in the lower value of EUR/USD, as Mario Draghi explained us so well. Could we see a correction before the next move down? Perhaps, but this could be only temporary. A reminder of weak inflation in the euro-zone and of strong US growth could certainly shape the next fall.
Forex Analysis: EUR/USD Breaks Down to New Lows
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