EUR/USD made an attempt to recover after the fall, but eventually closed lower as the euro-zone recession looks worse. Mario Draghi’s speech, Flash PMIs and German Ifo Business Climate provide a very busy schedule. Here is an outlook for the market moving events, and an updated technical analysis for EUR/USD.
GDP figures from Germany, France, Italy and the Eurozone dropped sharply, more than anticipated, missing market predictions. Meanwhile ECB President Mario Draghi remarked in a speech before the Spanish Parliament that Spain has succeeded in stabilizing its banking system and is headed towards brighter future. Will the Euro-zone economies march towards recovery in the coming months? One factor that supports the single currency is the weak stance of the G-20 regarding currency wars: the euro-zone is on the losing side – its currency could enjoy the lack of participation of in the battles. Will the euro recover now? Let’s start.
Updates: Eurozone Current Account looked weak, posting a surplus of 13.9 billion euros. The e estimate stood at 15.3 billion. ECB head Mario Draghi testified before the European Parliament’s Economic and Monetary Committee. Draghi said that the Eurozone economy was weak, but should show improvement later in 2013. He added that the ECB did not have a target for the euro, but was closely monitoring the currency, as its high value could affect the ECB’s inflation targets. German and Eurozone ZEW Economic Sentiment were outstanding. The German release climbed to 48.2 points, well above the estimate of 35.3 points. The Eurozone reading also looked sharp, rising to 42.4 points. The forecast stood at 35.5 points. EUR/USD was trading quietly, as EUR/USD was trading at 1.3347.
German PPI rose 0.8%, doubling the forecast of 0.4%. German Final CPI declined 0.5%, matching the forecast. French CPI dropped 0.5%, missing the estimate of a 0.2% decline. German 10-year bonds posted an average yield of 1.66%. Eurozone Consumer Confidence remained unchanged, at -24 points. On Thursday, PMIs across the Eurozone were weak. French Flash Manufacturing PMI came in at 43.6 points, just under the estimate of 43.9.French Flash Services PMI disappointed, recording a reading of 42.7 points. This was well below the estimate of 44.5 points. German Flash Manufacturing PMI was higher, climbing to 50.1 points. The estimate stood at 50.4 points. German Flash Services PMI came in at 54.1 points, missing the estimate of 55.5. Eurozone PMIs also disappointed. Flash Manufacturing PMI came in at 47.8, below the forecast of 48.4. Flash Services PMI posted a reading of 47.3 points, way off the estimate of 49.2. Spanish 10-year bonds dropped slightly, recording an average yield of 5.20%. The previous auction fetched a price of 5.29%. EUR/USD continues to be under pressure, as the pair was trading at 1.3190.
- Current Account: Monday, 9:00. The euro zone’s current account surplus edged up in November reaching its highest level on record with a reading of 14.8 billion euros. The surge occurred amid an expansion in trade surplus indicating the Euro-zone exports more goods than it imports. The reading missed predictions of a 6.5 billion surplus. Another rise to 15.3 billion is expected this time.
- Mario Draghi speaks: Monday, 14:30. Mario Draghi president of the ECB is scheduled to speak before the European Parliament’s Economic and Monetary Committee, in Brussels. His words may cause volatility in the market. In the rate decision presser, Draghi sent the euro plunging.
- German ZEW Economic Sentiment: Tuesday, 10:00. The ZEW survey recorded a surge in optimism among German investors, with an increase of 24.6 points reaching 31.5 in January, the highest level since May 2010. The survey also reveals a pickup in the six-month outlook. Economists expected a smaller rise to 12.2. A further increase to 35.3 is forecasted now.
- ZEW Economic Sentiment: Tuesday, 10:00. The Center for European Economic Research survey on the Eurozone has also improved in January, surging to 31.2 from 7.6 in December, Indicating growing optimism concerning the Eurozone’s economic prospects in the coming six months. The reading missed predictions for a 14.1 reading. Economists predict a further rise to 35.5.
- German PPI: Wednesday, 7:00. Producer prices produced declined for the second consecutive month in December, sliding 0.3% after a 0.1% contraction in November. The overall inflation seems contained. A 0.4% rise is anticipated this time.
- French CPI: Wednesday, 15:00. A sharp rise in prices of services and manufactured products drove France’s consumer price index (CPI) up by 0.3% in December, following 0.2% decline in the previous month, official figures showed Thursday. On a yearly basis, the country’s CPI rose by 1.3%. A drop of 0.2% is expected this time.
- Flash PMIs: Thursday. The Overall economic conditions in the Euro-zone continued to improve in January. Both manufacturing – 47.9 and Services – 48.6 PMI’s still show contraction but are definitely getting better. As for Germany Services PMI increased to a 19-month high of 55.3 indicating expansion while the Manufacturing PMI neared the 50 point line to 49.8. However, French Manufacturing PMI declined to 42.9 from 44.6 in December indicating a continuing weakness. Nevertheless, things are looking good for the Eurozone recovery prospects. A further improvement in PMI’s is predicted. Here are the expected readings: French Manufacturing PMI – 43.9, French Services PMI – 44.5, German Manufacturing PMI – 50.4, German Services PMI – 55.5, Euro-zone Manufacturing PMI – 48.4, Euro-zone services PMI – 49.2.
- German Final GDP: Friday, 7:00. After a long period of growth, the German economy contracted by 0.6% in Q4 according to the initial release. This is a weak figure and also worse than expected. The number will likely be confirmed.
- German Ifo Business Climate: Friday, 9:00. The German IFO Business Climate, rose in January to 104.2 after posting a reading of 102.4 in December, rising above market predictions. Following this release, IFO Chief Economist Klaus Wohlrabe sounded very optimistic regarding the German economy in 2013. Another rise to 104.9 is expected.
- Belgium NBB Business Climate: Friday, 14:00. Belgian business confidence, , unexpectedly dropped in January to -13.2 from -11.8 in December. The reading was lower than the -10.9 reading anticipated by analysts. An improvement to -11.1 is forecasted now.
*All times are GMT.
EUR/USD Technical Analysis
Euro/dollar started the week rising above the 1.3350 line (mentioned last week). As the pair continued rising, it made a short lived break above 1.3486, and then dropped back down, and stayed depressed under 1.34, getting closer to 1.33.
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.
1.3486 was the peak seen in February 2012 and is a separator of ranges. An attempt to break higher eventually failed. 1.34 was a stubborn cap during the spring of 2012 and continued its stubborn stance in January 2013 – the line now turns into resistance.
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.
Sliding lower in the channel
The return to the uptrend channel (thick black lines) proved to be successful. The pair slid a bit lower within this channel, and a test of uptrend support cannot be ruled out.
I remain bearish on EUR/USD
The GDP figures were even worse than the low expectations. This bad news reminds us that the real economy is suffering, and that Draghi certainly had what to be worried about. In addition, the upcoming week is a run up towards the Italian elections. Fears of Berlusconi’s comeback will likely haunt the euro.
In the US, we did not see any big breakthrough, but the drop in jobless claims and the rise in retail sales show that the US is still growing in a steady pace. More technical analysis: – EUR/USD Head-and-Shoulders Reversal or Simple Correction? 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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- USD/CAD (loonie), check out the Canadian dollar forecast