EUR/USD made a big pullback as the ECB also had its say on the exchange rate. Is this a change of course, or actually a buy opportunity? Eurogroup Meetings, GDP data and the G20 meetings are the highlights of this week. Here is an outlook for the events moving the euro and an updated technical analysis for EUR/USD.
Draghi was more optimistic concerning financial markets, promising to keep close watch on the recent rise of the euro, a worrisome factor that could further weaken the region’s economy. He said economic growth would commence in the second half of 2013 thanks to the ultra-easy monetary policy, the improvement in financial market conditions and a pick-up in global demand. EUR/USD plunged and returned to lower ranges as markets focused on the downside risks and the warning about the euro’s value.
Updates: At the EU Economic Summit, leaders agreed to trim the EU budget, from 994 billion euros to 960 billion. Although the cut was small, it was the first budget ever in the EU. French Industrial Production dropped 0.1%, beating the estimate of -0.3%. The Eurogroup met in Brussels on Monday. On Tuesday, the EU finance ministers are meeting . ECB President Mario Draghi will address the Spanish Parliament on Tuesday. EUR/USD broke through the 1.34 line, but is edging lower. The pair was trading at 1.3424. The euro took it on the chin on Thursday, as a host of Euro GDP data was awful. French Preliminary GDP declined 0.3%, slightly more than the forecast of -0.2%. German Preliminary GDP dropped by 0.6%, a sharp reversal from the previous reading. The estimate stood at -0.5%. Italian GDP dropped 0.9%, failing to meet the estimate of -0.5%. The Eurozone Flash GDP fared no better, dropping by 0.6%. The estimate stood at -0.5%. French Preliminary Non-Farm Payrolls declined by 0.2%, matching the forecast. The ECB released its monthly bulletin on Thursday. The euro has edged up after sharp losses on Thursday. EUR/USD was trading at 1.3346.
- French Industrial Production: Monday, 7:45. French industrial output edged up 0.5% in November, rebounding from the 0.6% drop in October. The rise exceeded market expectations, of a 0.1% expansion occurred mainly due to strong growth in transport equipment and energy production. A drop of 0.3% is forecast now.
- Eurogroup Meetings: Monday. The Eurogroup meeting will include the finance ministers of the eurozone member states. The ongoing recession, the European budget and the debt crisis are important topics on the agenda. There is still a disconnect between financial markets and the situation in the real economy.
- German WPI: Wednesday, 7:00. Germany’s wholesale prices remained flat in December, following a 0.7% decline in November. Economists expected a small rise of 0.1%. On a yearly base German WPI increased 3.2 % in December, the same rate as in November. A gain of 0.4% is anticipated.
- ECOFIN Meetings; Tuesday. The Economic and Financial Affairs Council (Ecofin) is comprised of Economics and Finance Ministers. It coordinates economic policy in the Eurozone. Among its rolls it surveys and monitors Member States’ budgetary policy and public finances, the euro, financial markets and capital movements, and economic relations with third countries. The regular Ecofin meets once a month including one informal meeting per Presidency and is chaired by the rotating Presidency (i.e. Ireland for the first half of 2013).
- Industrial Production: Wednesday, 10:00. Industrial output among the 17 European Union countries fell in November for the third consecutive month, down by 0.3% indicating recession continued to the last quarter of 2012. The drop was contrary to market predictions of a 0.2% rise. On a yearly base, industrial production in the eurozone was down by 3.7%. This is further evidence that the eurozone consumers remain reluctant to spend, particularly on high value items. A rise of 0.3% is predicted.
- GDP’s: Thursday. The euro-zone economy suffered recession for the second time in four years amid harsh budget cuts imposed in order to contain the debt crisis that broke out in October 2009. GDP in the 17-nation bloc declined 0.1% in the third quarter following a 0.2% drop in the previous three months, a bit better than the 0.2% decline predicted. Meanwhile French and German growth surprised by unlike the other Euro members. Germany increased by 0.2% after a 0.3% rise in the previous quarter and France also increased 0.2% following a 0.1% contraction in the second quarter. However Italian GDP contracted 0.2% from a 0.7% decline in the previous quarter. The overall weak figures raise concerns about the EU’s economic prospects in the coming months. French Prelim GDP is expected to contract by 0.2%, German Prelim GDP is forecated to decline 0.5%, Italian Prelim GDP is expected to drop by 0.5%, And the Euro-zone Flash GDP is expected to contract 0.4%.
- French Non-Farm Payrolls: Thursday, 7:45. French job market excluding the farming sector and government workers, contracted 0.3% in the third quarter, following a 1% decline in the previous quarter. Things are expected to get worse once the French President Francois Hollande will execute his plan to save €30 billion, by tax hikes, and spending cuts. A decline of 0.2% is expected now.
- ECB Monthly Bulletin: Thursday, 9:00. The January ECB Monthly Report detailed the information given by Mario Draghi at the press conference following the central bank’s latest monetary policy meeting. The ECB expects inflation to stay below 2% in 2013 and that economic recovery will start later this year. They stressed the importance of reforms in the Eurozone governments in order to boost growth and lead to expand the labor market.
- Trade Balance: Friday, 10:00. The euro zone registered a higher than expected trade surplus in November due to surging exports and flat imports, The Euro-zone reached an adjusted trade surplus of 11 billion euros following 7.4 billion in the previous month. Germany grew at the faster pace in the first 10 months of 2012 to almost 158 billion euros from 129 billion a year earlier, but the biggest improvement belonged to Italy, reaching a 6.6 billion euro surplus in the first 10 months of 2012 from a deficit of 25.3 billion euros a year earlier. A small decline to 10.7 billion is anticipated this time.
- G20 Meetings: Fri-Sat. The G-20 meetings include twenty of the most important economies on the world, comprised of 19 independent countries and the European Union. Switzerland was invited for the first time by Russia to participate in this prestigious event, despite not being a member. Russia claimed Switzerland will play a central role in decisions for the international financial system.
*All times are GMT.
EUR/USD Technical Analysis
Euro/dollar began the week with a downfall, breaking below the 1.3588 line (mentioned last week). The line capped the pair for some time, and the pair found a cushion in 1.3486. The big downfall resulted in a test of the 1.3360 line.
Technical lines from top to bottom:
1.40 is the ultimate resistance line for now – this is a round number eyed by many politicians, and also worked as true technical support in the past. Below, 1.3915 capped the pair in late 2011 and is minor resistance now.
1.3860 was a stubborn peak in the autumn of 2011 and is a key high line. 1.3740 was a swing high at the same period and is a minor line now.
1.3690 worked as support during the aforementioned period and is another minor line. 1.3588 worked as a clear separator of ranges during January 2013 and proved to work as resistance in February.
1.3480 was the peak seen in February 2012 and is a separator of ranges. 1.34 was a stubborn cap during the spring of 2012 and continued its stubborn stance in January 2013 – it has weakened now.
1.3360 is the recent peak of January 2013 and worked very nicely as support during February. Below, 1.3290 served as resistance before the pair collapsed in May, After many failures to break higher, the euro finally pushed through.
1.3255 provided support during January 2013 and also beforehand. This is the bottom of the previous range. 1.3170, which was the peak of September, served as support for the pair after the break in December and is a key line on the downside.
1.3130 proved to be strong resistance during December 2012 and now switches positions to support. 1.3110 is a minor line 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. In January 2013 it served as the last line of support, at least for now.
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.
Back to the channel
After a break to the upside, EUR/USD fell back to the uptrend channel and i the middle of it.
I am bearish on EUR/USD
The Draghi drag is likely to continue a bit more, assuming that the GDP releases will be disappointing. Also the worries about the Italian elections and the Spanish political scandal weigh on the euro. However, once the euro retreats from the “currency battlefield”, it will probably not go very far – flows back into Europe are still significant. In the US, it’s the same old story of slow and steady / frustrating recovery, so the focus remains on Europe’s issues.
More technical analysis: EUR/GBP Pulls Back within Strong Bullish Trend – 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:
- 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