EUR/USD had a volatile week, but eventually remained almost unchanged as central bankers left many open questions. Services PMIs, retail sales and German industrial Production and Trade balance are the major events on our calendar. Here is an outlook on the main market-movers of this week and an updated technical analysis for EUR/USD, which made false breaks.
Last week, ECB President Mario Draghi maintained the key ECB rates unchanged, noting an improvement in the Eurozone’s economic activity, even though not all figures were positive. Draghi also reiterates his low rates pledge to support gradual recovery, refusing to rule out further cuts in case of a fall in sentiment and activity data. The ECB is unlikely to withdraw any stimulus in the foreseeable future. Will the Eurozone continue to stabilize in the coming months? In the US, encouraging signs ended in a disappointing NFP, leaving the “Septaper” question open.Updates:
- Services PMIs: Monday. The final readings for the June Services PMI revealed small progress in the Eurozone and Spain, but a further decline for Italy. The Eurozone reached 48.3 from a preliminary 48.6 following May’s 47.2. Spain improved with a 47.8 reading, beating forecast for a 47.5 release and following 47.3 in May. However Italy continued to disappoint with a 45.8 reading vs. consensus 46.5 and last month’s 46.5. All readings were below the 50 point line, indicating contraction. Spain is expected to advance to 48.4, Italy to 46.6 and the Eurozone is predicted to remain 49.6.
- Sentix Investor Confidence: Monday, 8:30. Euro zone investor climate, unexpectedly weakened in July after two months of gains, amid concerns over Portugal’s ability to meet its bailout conditions. Sentiment in the 17-nation area bloc declined to -12.6 in July from -11.6 in June, missing forecast for a rise to -10. a sharp rise to 9.8 is expected this time.
- Retail Sales: Monday, 9:00. Retail sales in the Eurozone picked-up for the first time in four months, rising 1.0% in May, after a 0.2% decline in April. The major increase occurred in food, clothes and computers, indicating recovery is on the way. The reading was way beyond the 0.4% rise predicted by analysts. On a yearly base there was a 0.1% decline in May far better than the 2.0% drop projected by economists. A drop of 0.6% is anticipated this time.
- Italian Industrial Production: Tuesday, 8:00. Italy’s industrial output flipped to gain in May, following three months of decline rising 0.1% after a 0.3% drop in April. The reading was lower than the 0.4% increase forecast. The International Monetary Fund cut its economic forecast for Italy, saying it expected the economy to shrink by 1.8% this year. A rise of 0.5% is forecast.
- Italian Prelim GDP: Tuesday, 9:00. Italy’s economy contracted more than expected in the first quarter, reaching a seven – quarter recession. Gross domestic product declined 0.5%, following a 0.9% fall in the fourth quarter of 2012. Analysts are pessimistic regarding a possible pick-up in Italian economic activity. A contraction of 0.4% is projected in the second quarter. In the meantime, the Italian opposition warns about a default and riots in the autumn.
- German Factory Orders: Tuesday, 10:00. German factory orders dropped unexpectedly in May, down 1.3% from a 2.2% fall in April, contrary to predictions for a 1.3% increase. The ongoing decline indicates a possible downturn in Germany’s industrial sector. An increase of 1.1% is expected now.
- French Trade Balance: Wednesday, 6:45. The French trade deficit, worsened sharply in May, reaching 6.01 billion following a deficit of 4.5 billion euros in April. May’s deficit increased above 6.0 billion euros for the first time since June 2012, while economists expected deficit to remain unchanged. Overall exports totaled 36.1 billion euros from 37.7 billion euros in April, while imports reached 42.1 billion euros. A trade deficit can be a strain on growth while a surplus indicated higher output. French trade deficit is expected to improve to5.0 billion.
- German Industrial Production: Wednesday, 10:00 German industrial production took an unexpected hit in May, dropping by 1.0% after a 2.0% increase in the previous month. The reading was worse than the 0.5% decline projected by analysts. This was the first decline since January which was accompanied by other weak data such as a drop in exports and in factory orders indicating Europe’s largest economy is weakening rather than marching forward. A rise of 0.3% is expected now.
- German Trade Balance: Thursday, 6:00. Germany’s seasonally adjusted trade surplus narrowed to EUR 14.1 billion in May, from EUR 17.5 billion in April coming below market expectations. Exports declined a seasonally adjusted 2.4% following a 1.4% expansion. Nevertheless, the Federation of German Wholesale, Foreign Trade and Services projects that export growth will reach 5% this year. Germany’s trade surplus is expected to reach 15.2 billion.
- ECB Monthly Bulletin: The ECB bulletin released in July reveals, ECB’s Weidmann made some contradictory remarks, saying that monetary policy has ventured into dangerous territory, but he also said that the economy, inflation, and lending justify the low rates. He went on saying, the ECB will raise rates in case inflation rises despite Draghi’s comments that rates will remain low.
- French Industrial Production: Friday, 6:45. French industrial production fell less than expected in May, dropping 0.4% after a 2.2% gain in April. Economists expected a 0.5 percent decline. President Francois Hollande is struggling to boost an economy that has been frozen for more than two years. French manufacturing output gained 0.6% over the past three months, bolstered by a 5% advance in production and a 8.1% leap in refining. This rise indicates the economy expanded in the second quarter after shrinking 0.2% in the first three months of the year. An increase of 0.3% is forecast this time.
*All times are GMT
EUR/USD Technical Analysis
Euro/dollar began the week capped by the 1.33 line (mentioned last week). After a move lower, the pair broke higher and tackled the 1.3350 line without success. It fell, but remained above 1.3175 before recovering and closing at 1.3281.
Technical lines from top to bottom:
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.
The round line of 1.34 served in both directions when the pair traded in higher ground. The pair temporarily breached this line in June. 1.3350 provided support when the pair traded higher in February and is the next line if the pair breaks above 1.33.
1.33 capped the pair quite strongly during July and August 2013. 1.3255 provided support during January 2013 and also beforehand. This line is now pivotal within the range.
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.
Lower, the round number of 1.28 was the bottom of a long term wide range in 2012 and its breach in May 2013 was not confirmed. Below, 1.2750 worked as a separator of ranges during November, and stopped the pair’s drop in March. This is a key line on the downside, as clearly shown in the first week of April and then in July.
False break of long term downtrend resistance
The move above 1.33 was also a temporary and false break above the downtrend resistance line dropping from the February high of 1.37 through the June high of 1.3415.
Since early July, EUR/USD is running along an uptrend resistance line, and now got a bit far from it.
I turn from neutral to bearish on EUR/USD
While the ECB sounded a bit more upbeat and acknowledged the green shoots, it maintains a dovish bias. A recovery in the euro-zone is still to be seen, and political crises in Italy and Spain are still brewing. In the US, NFP didn’t meet the elevated expectations, but the economy is still creating jobs and growing. While we didn’t get a smoking QE tapering gun, the Fed’s course in reducing the pace of stimulus is clear.
If this is all EUR/USD can do in a week where the ECB isn’t negative and the key US indicator disappoints, it seems that the pair could fall from here.
More on EUR/USD:
- EUR/USD Stalls Under Major Resistance – By James Chen.
- EURUSD: Halts Upside Offensive On Pullback– By FX Tech Strategy
- Opinion: Weaker jobs number is not end of USD rally– 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:
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