Search ForexCrunch

EUR/USD  fell to new lows and could not recover as the dollar stormed on and despite no immediate action from the ECB. The central bank is the star of the upcoming week as well with the TLTRO results, alongside other data.  Here is an outlook for  the highlights of this week and an updated technical analysis for EUR/USD.

Draghi did not deliver QE this time, and adopted a “wait and see” approach, with readiness to act early in 2015. However, his support of the idea, the severe cut in forecasts and the fact that these forecasts did not factor the recent fall in oil prices all show that it is probably a matter of time. Subsequent report imply that a large program is in the works. Apart from that German factory orders shined and PMIs were mixed. In the US, the Non-Farm Payrolls report was superb with a 321K job gain and finally a bump in wages. This helped push the euro back down to fresh 2 year lows.

[do action=”autoupdate” tag=”EURUSDUpdate”/]

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

EUR USD December 8 12 2014 technical analysis daily chart euro dollar fundamental outlook and sentiment

 

  1. Eurogroup and ECOFIN meetings:  Monday and Tuesday. The ministers of the euro-zone and later the whole EU 28 meet to discuss current affairs. Among the contentious issues we find the French and Italian budgets, which are not consistent with the EU guidelines, the ongoing tensions with Greece about a potential third bailout the Juncker plan to boost growth, which has raised a few eyebrows about its viability. Any serious effort to boost growth would lift the euro, but this isn’t likely.
  2. German Industrial Production: Monday, 7:00. The euro-zone’s powerhouse enjoyed elevated factory orders in October, and industrial output could follow, even if expectations stand at only +0.2% against 1.4% in September.
  3. Sentix Investor Confidence: Monday, 9:30. This wide survey of 2800 of analysts and investors further deteriorated with a score of -11.9 points in November. An improvement to -9.9 is expected now. Note that the negative number reflects pessimism, which accompanies us for already three months.
  4. German Trade Balance: Tuesday, 7:00. Germany enjoys a very  wide surplus and this  keeps the euro bid. This is due to its vast exports. The last figure stood on +18.1 billion in September. A small advance to 18.5 billion is predicted.
  5. French Trade Balance: Tuesday, 7:45. The zone’s second largest economy has a deficit. In September it stood at 4.7 billion euros. A small squeeze to 4.5 billion is on the cards now. Note that the French government published its budget balance at the same time and a deficit is likely here as well.
  6. French Industrial Production: Wednesday, 7:45. Industrial output in Europe’s No. 2 economy remained flat in September, continuing the ongoing stagnation. It is expected to pick up, with a rise of 0.2% in October. Final NFP, published  earlier in Paris, is expected to confirm the 0.2% squeeze originally reported.
  7. German Final CPI: Thursday, 7:00. The drop in oil prices already reached Germany in November, with no change in m/m prices, and with a slide of the EU standard y/y HICP to 0.6%. These numbers will likely be confirmed.
  8. French CPI: Thursday, 7:45. Prices remained flat in October and now they are expected to advance by 0.2%. This input is important for the final read for the euro-zone CPI, which stands at rock bottom levels.
  9. ECB Monthly Bulletin: Thursday, 9:00. One week after the decision, we get detailed information from the European Central Bank about its current assessment and future forecasts. It will be interesting to get a reminder that the downgraded forecasts do not include the recent fall in oil prices and how worried the ECB staff is.
  10. TLTRO 2: Thursday, 10:15. This is the key event of the week. The ECB announced a program of targeted loans: banks get the money on the basis of them lending it to the real economy. Two tranches have been announced. The first one came short of all expectations, with only €82.6 billion. A more robust take up is expected now, but it is unlikely to surpass €200 billion. In order to  advance relatively quickly towards a balance sheet expansion of €1 trillion with the previous 2011-2012 LTROs being paid back, the ECB would need QE, and this could add contribute to paving the way for EZ QE.
  11. German WPI: Friday, 7:00. The Wholesale Price Index is yet another measure of inflation at the deeper end of the economic cycle. After a drop of 0.6% in October, a rise of 0.3% is forecast for November.
  12. Industrial Production: Friday, 10:00. While this all-European figure is released after the German and French ones, it still has the capacity to rock the single currency. After an advance of 0.6% in September, a rise of 0.2% is likely.
  13. Employment Change: Friday, 10:00. This late employment figure could well be overshadowed unless it surprises. An advance of 0.2% is expected for Q3 after the same print in Q2.

* All times are GMT

EUR/USD Technical Analysis

Euro/dollar  started the week with an attempt on the very round 1.25 line (mentioned last week). After the pair was rejected, it began sliding lower, eventually breaking down to lower ground. A shot higher sent it to resistance at 1.2450 but it was unable to maintain these levels and it eventually closes the week close to the lows.

Live chart of EUR/USD: [do action=”tradingviews” pair=”EURUSD” interval=”60″/]

Technical lines from top to bottom:

We start from lower ground this time. 1.27 is a round number and also worked as  resistance to a recovery attempt. This is followed by 1.2660 – which  marks the beginning of long term uptrend support.

Below, 1.2570 is the initial low seen in October and now a line of resistance. The next line is critical: of 1.25, which is USD/EUR at 0.80.  The pair had various battles around this line, from the topside in October and from the downside in December.

1.2450 is resistance after the pair reached this line in a recovery attempt during December.  It  is followed by 1.2360, which worked as support more than once, including in November 2014. It was a double bottom at one point.

1.2280 joins the chart after it provided support to the pair in December, but it isn’t a strong line. 1.2245 served as support several times in that summer, and 1.2170 was the “shoulder” in the inverse H&S pattern around the same time. The last line is the 2012 low of 1.2040.

Even lower, the post crisis low of 1.1875 should be watched, as well as 1.17, which was the launch value of the pair in 1999.

Downtrend resistance well respected

As the thick black line shows, the pair is trading under downtrend resistance since mid  October. This line should be watched in recovery attempts.

I remain  bearish on  EUR/USD

While the ECB didn’t rush to action now, it is clear that QE is being brewed in the ECB headquarters.  Current inflation forecasts show that the ECB is falling short of its single mandate of 2% or “a bit below”  inflation, and even these forecasts are already outdated. The TLTRO could be the nail in the coffin by showing that the ECB has no other choice but to tap the sovereign bond market if it wants to  expand its balance sheet.

On the other side of the Atlantic, we had an excellent jobs report and some wage inflation. While the bump up may be a one off, even a return to previous job advances keeps the Fed firmly on track to tightening, and that’s the opposite direction that Europe is going to. It seems unlikely that we will get a correction in EUR/USD this week.

In our latest podcast, we preview December’s big events, talk  about the importance of jobless claims, the crash in oil prices and GOFO going negative:

Download it directly here.

If you are interested a different way of trading currencies, check out the  weekly binary options setups, including EUR/USD and more.

Further reading: