EUR/USD had an excellent week, touching levels last seen in May. At critical resistance, will we see a follow through or a bounce? German Ifo Business Climate is the highlight of this week. Here is an outlook on the main market-movers this week.
The announcement of QE4 in the US certainly weakened the greenback, especially as it was accompanied with very dovish guidance. In Europe, Greece finally received the long awaited tranche of aid after completing the buyback program. Yet in Germany, mixed PMIs and the drop in manufacturing left many worried. Which half of the glass will the euro see now? Let’s Start
Updates: Italian Trade Balance looked sharp, increasing to 2.45 billion euros. This easily exceeded the estimate of 0.25B. Eurozone Trade Balance disappointed, posting a monthly surplus of 7.9B. The estimate stood at 10.8B. ECB President addressed the Committee on Economic and Monetary Affairs in Brussels. Greece received 34.3 billion euros as part of its bailout package. German Ifo Business Climate and Eurozone Current Account will be released on Wednesday. EUR/USD remains firm, as the pair was trading at 1.3181. German Ifo Business Climate looked sharp, coming in at 102.4 points. The estimate stood at 101.9. Eurozone Current Account was a disappointment, as it posted a surplus of 3.9 billion euros. This was well below the forecast of 5.8B. German PPI declined -0.1%, matching the market forecast. Italian Retail Sales dropped 1.0%, well below the estimate of 0.0%. Belgium NBB Business Climate came in at -11.8 points, beating the forecast of -13.1. Eurozone Consumer Confidence will be released later on Thursday. EUR/USD is steady, as the pair was trading at 1.3278.
- Trade Balance: Monday, 10:00. The eurozone seasonally adjusted trade surplus widened to 11.3 billion Euros from the revised 8.9 billion Euros, above analyst’s expectations for 9.5 billion Euros surplus. Exports dropped 1.1% on September from 3.3% gain in August while imports declined by 2.7% from 2.3% registered in August.
- German Ifo Business Climate: Wednesday, 9:00. Germany’s Ifo business climate index climbed in November to 101.4, from 100 in October, contrary to predictions of a further decline in sentiment. The reading may have been influenced by positive data from the US and China. A rise to 101.9 is expected now. The positive forecasts were helped by the improvement in the ZEW indicator.
- Current Account: Wednesday, 9:00. The eurozone’s current account surplus plunged to 800 million euros ($1.02 billion) in September following 10.9 billion euros the August. The annualized surplus over the 12 months to September, revealed a surplus of 77.8 billion euros, compared with a deficit of 7.6 billion euros in the same period a year earlier. Current account surplus is expected to grow to 5.8 billion.
- German PPI: Thursday, 7:00. Producer prices remained unchanged in October contrary to predictions of a 0.1% rise, following a 0.3% increase in the previous month. The 12 month decline in PPI was not reflected in the core PPI, indicating output prices remain constrained by weak domestic demand. A decline of 0.1% is predicted now.
- Belgium NBB Business Climate: Thursday, 14:00. Confidence among Belgian business leaders increased in November to -13.4 from -13.5 in October. Economists predicted a flat reading. A further decline to -14.3 is forecasted.
- Consumer Confidence: Thursday, 15:00. Euro zone consumer confidence declined in November to -27 following -25.7 in October due to the EU debt crisis. Under severe cuts, households are in no position to increase spending and boost the EU economy. An improvement to -26 is expected now.
- GfK German Consumer Climate: Friday, 7:00. German consumer sentiment declined in November to 5.9 from a downwardly revised 6.1 in October, upon the ongoing deny crisis in the EU. Despite this decline, the survey shows Germans do not fear recession. Household sentiment remains to be satisfactory and private consumption is continuing to be the main force in the German economy. No change is expected.
*All times are GMT.
EUR/USD Technical Analysis
€/$ began the week with a slide to support at the 1.2880 line (mentioned last week), before climbing all the way up towards the top of the range. 1.30 and 1.31 slowed down the advance at various stages in the week.
Technical lines from top to bottom:
We start from higher ground this time: In the distance, 1.36 was a cushion in the fall of 2011 and then switched to resistance. 1.3480 was the peak seen in February and provides a significant backstop to 1.340.
1.34 was a stubborn cap during the spring of 2012 and is the far line in the distance. Below, 1.3290 served as resistance before the pair collapsed in May.
1.3170 worked very well as a double top during September 2012 and is now the top frontier of the range. The late challenge of this line leaves an open question: will the pair break or bounce?. 1.3130 proved to be strong resistance during December 2012 and now switches positions to support.
1.3110 now replaces 1.3080 after working as temporary resistance in December 2012. 1.3030 provided some support at the same period of time, and also at the end of November 2012. Both are minor in comparison with the next line.
The very round 1.30 line was a tough line of resistance for the September rally. In addition to being a round number, it also served as strong support. It recently worked as a battleground and the pair is now ready for another battle around this line. It is closely followed by 1.2960 which provided some support at the beginning of the year and also in September and October – the line is strengthening once again after temporarily cushioning the fall during December.
1.2880 provided some support in October and also in late November and December. It proved to be a backstop on the initial false rally after Obama’s victory. 1.28 is the bottom border of the range, and was eventually left behind. The pair fell to this low in September and later got close to it.
1.2750 capped the pair after the Greek elections and also had a similar role in the past. It is now a pivotal line in the range. 1.2690 was the new low after the November breakdown, and also provided support on a second downfall attempt in November 2012.
1.2624 was the low in January and now serves as weak support,1.2590 was a cap during August, before the pair surged.
Below, the round number of 1.25 is not only of high psychological significance (USDEUR 0.80) but also worked as support during the summer of 2012. 1.2440 is already a stronger line, that was a clear separator during August.
Below, 1.2390 was resistance in July. 1.2250 is lower support, also at that time.
Long Term Downtrend Resistance Weakening
The line extending from the 2011 peak of 1.4940 (a green line on the chart) was breached during the first week of December, but is in play once again. It is weaker now.
I am bullish on EUR/USD
As the failure to settle above 1.3170 is a bit worrying for bulls, we could see some consolidation before a new surge towards the holiday season. The Greek issue is further down the road and some positive German surveys support the pair. In general, the economic situation in Europe remains terrible, but this will probably be reflected after a depressing shopping season.
In the US, the announcement of QE4 was accompanied by extremely dovish guidance, and the weakening effect on the US dollar has only been partially seen. There are also some positive signs around the fiscal cliff negotiations, and politicians may scramble a deal in order to enjoy their vacations. There is more potential for EUR/USD to enjoy the “Santa rally”.
More fresh technical analysis: Forex Analysis: EUR/USD Advances to Resistance Trend Line – by James Chen.
If you have interest in a different way of trading currencies, check out the weekly binary options setups, including EUR/USD and more. Further reading:
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