EUR/USD continued trading in range, looking for a new direction. The ECB might provide guidance, with its all important rate decision, among other noteworthy events. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.
The euro enjoyed safe haven flows amid more worries about China and further pressure in oil prices, but it maintained its ranges. Messages from the ECB were mixed: some don’t want further stimulus while the meeting minutes did leave an open door. We will learn more now. In the US, the mediocre data rules with a second rate hike in March seeming to fade away.Updates:
EUR/USD daily graph with support and resistance lines on it. Click to enlarge:
- German CPI: Tuesday, 7:00. This is the final read for December. The initial print showed a drop of 0.1% m/m, worse than expected, and this led to a dip in the euro. The final figure is not expected to change the picture, but will still be watched, as this is ECB week.
- Current Account: Tuesday, 9:00. The euro-zone enjoys a significant trade surplus, greatly thanks to the German export machine. After 20.4 billion in October, a similar number is on the cards for November: 19.3 billion.
- German ZEW Economic Sentiment: Tuesday, 10:00. While IFO carries more weight, this early release for January can certainly move markets. In December, we had a second consecutive bounce to 16.1 points. Are German businesses still optimistic given the recent stock market woes? The figure is expected to fall to 8.2 points. The all-European figure stood on 33.9 in December and carries expectations for 27.9 in January.
- Inflation data: Tuesday, 10:00. As the ECB is about to conclude its meeting, these final figures for December could have the last word. According to the initial release, prices rose by 0.2% y/y. This is affected by oil. Core CPI, which excludes oil among other volatile items, advanced by 0.9%. Will we see revisions here? The initial data disappointed and no change is expected.
- German PPI: Wednesday, 7:00. Producer prices are also feeling the pressure of lower energy prices, and a drop of 0.2% was seen in November. Yet another slide could be seen now.
- Rate Decision: Thursday, 12:45, press conference at 13:30. In the previous meeting of the ECB, expectations were sky high for more monetary stimulus, and the results fell a bit short. A cut of the deposit rate to -0.30% and an announcement of extending QE to March 2017 + reinvesting proceeds were not enough. EUR/USD shot higher and Draghi made his best effort at damage control. No change is expected this time, but we could get a hint about what the Bank could do in March, when new staff forecasts are published. Draghi and some of colleagues are open to do more, while the hawks, most notably his German colleagues, say they have done more than enough. A promise to do more, as inflation looks weak, could hit the euro, while a relaxed stance, given the improvement in the euro-zone, could lift the common currency.
- Consumer Confidence: Thursday, 15:00. The official survey by Eurostat showed steady pessimism within euro-zone consumers in November. For the month of December, the 2300 strong survey could be similar in its results.
- Flash PMIs: Friday morning: France at 8:00, Germany at 8:30 and the whole euro-zone at 9:00. These preliminary numbers from Markit always move the euro. These are figures for January. France, the second largest economy, saw slow growth in the manufacturing sector, with 51.4 points in December and a rise to 51.6 is expected now. The services sector saw minor contraction with 49.8 points, below the 50 point threshold separating expansion from contraction and a move to 50.4 is on the cards now. Germany enjoyed 53.2 points in manufacturing and a strong 56 points score in services. Slides to 53 and 55.6 points are predicted. The euro-zone had results of 53.2 and 54.2 points respectively. Manufacturing likely dropped to 53 points while services remained unchanged.
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar traded in range during the week, finding support at 1.08 (mentioned last week) and didn’t breach 1.10. The pair eventually closed at 1.0906, slightly higher than beforehand.
Technical lines from top to bottom:
1.13 worked as support back in October and is the high line at the moment. It is followed by the swing low of 1.1220 in September which is minor resistance now.
1.1140 cushioned the pair in October. 1.1050 is the high seen in December and the next challenge on the upside.
1.10 is a round number and significant resistance. 1.0925, which was a support line in December, is the next support line. 1.0850 was the level the pair bounce off at the dying moments of 2015.
The round level of 1.08 worked as a double bottom in December and should be watched. 1.0710 is the next support line on the chart after temporarily capping the pair in April 2015. 1.0630 worked as nice support in November 2015 and then switched to resistance.
It is the last line before plunging to 1.0530, that supported the pair in April. Below, the 12 year low of 1.0460 seen in March.
I turn from neutral to bearish on EUR/USD
While the euro attracts safe haven flows in the current doom-and-gloom atmosphere, it could also suffer a blow from the ECB. Draghi and his colleagues are set to play their part in the global currency wars, even if reluctantly. Those that want to do more could have the upper hand, at least in opening the door for a move in March. In the US, the long list of negative surprises seem to push back another hike, but these figures could play second fiddle to the euro this week.
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