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EUR/USD  had one of its worst weeks, collapsing by nearly 400 pips in total on the massive QE decision. The pair has no time to rest as it is facing the Greek elections  and fresh inflation numbers among other events. Will it find a bottom after 6 weeks of falls or continue sliding?  Here is an outlook for  the highlights of this week and an updated technical analysis for EUR/USD.

Draghi  delivered a  huge QE program  of €60 billion per month that is set to last until September 2016 – over €1 trillion in total. The number exceeded expectations (that were  partly created as leaks). In addition, the program could extend beyond  the end date if inflation  expectations do not pick up in a sustainable manner. The buying will mostly be done by the national central banks, and that  kept the euro relatively bid for a short while. It then collapsed to a new low of 1.1113, or nearly 0.90 on USD/EUR. Apart from that, German  ZEW economic  sentiment beat expectations while manufacturing PMI missed. In the US, data was underwhelming once again, but growth continues.  Let’s start:

Update: Exit polls in Greece show landslide victory for SYRIZA – EUR/USD to open lower.

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

EURUSD technical analysis January 26 30 2015 euro dollar chart for currency trading after ECB QE

  1. Greek elections: Sunday, voting ends  at 5:00, full results later. Opposition radical left and anti-austerity SYRIZA led by charismatic Alexis Tsipras is set to win  over the current ruling party New Democracy led by PM Antonis Samaras.  Tsipras vowed to end austerity and renegotiate Greek debt and the bailout terms. There is a chance that this could eventually lead to a Greek exit out of the euro-zone. Money has been flowing out of Greece but so far it isn’t extreme. The most recent polls showed that undecided voters are breaking towards SYRIZA. At this point, a victory for Tsipras is mostly priced in but could still weigh on the euro. A hung parliament that would lead to fresh elections is the worst outcome as we’ve seen in 2012. A surprising victory for New  Democracy would boost the euro. Note that the winning party is granted 50 additional seats in parliament, therefore obtaining an absolute majority does not  necessitate an  absolute majority of the votes.
  2. German Ifo Business Climate: Monday, 9:00. Germany’s  No. 1 think tank has shown a gradual advance of business confidence from the lows. From a score of 105.5 in December, a rise to 106.7 is predicted for  January, in line with the ZEW number that exceeded expectations.
  3. Eurogroup meetings: Monday. The  finance ministers of the euro-zone convene for their regular meetings, but this time it is  on the backdrop of the ECB’s QE and after the results of the elections in Greece will be known.  The next moves regarding Greece will be high on the agenda. Will the Eurogroup offer concessions to the new government? Statements from these meetings are likely to rock the euro.
  4. German GfK Consumer Climate: Wednesday, 7:00. With falling unemployment and rising business confidence, also  consumers in the zone’s largest country are more optimistic. After the 2000 strong survey reached 9.0 points, another advance to 9.2 points is predicted for January.
  5. German Import Prices: Wednesday, 7:00. This second tier inflation number comes from the largest country, so it does have some impact. After a drop of 0.8% in November, a  fall of 1.4% is expected for December.
  6. German CPI: Thursday, the various German states report during the European morning with the all-German number at 13:00. When inflation came below expectations in Germany for  December, it became clear that outright deflation is on the cards for the euro-zone. After no change m/m and  a rise of only 0.2% y/y in national CPI, prices are now predicted to fall 0.7% m/m and stand unchanged year over year in the preliminary numbers for January. This is a key input for the all-European number on Friday, and has a  significant impact.
  7. German Unemployment Change: Thursday, 8:55. Germany is enjoying multi-year lows in  unemployment. After a fall of 27K in December,  another 12K drop is on the cards now. The unemployment rate is expected to remain  unchanged at 6.5%.
  8. M3 Money Supply: Thursday, 9:00.  The amount of money in circulation is growing at an accelerated pace. After  growing at 3.6% y/y in November, an  acceleration to 3.6% is  expected for  December. An even higher rate is likely once QE kicks in.
  9. Private Loans: Thursday, 9:00.  The level of private loans is still squeezing on a yearly basis, but the pace is slowing and it’s good news. After a drop of 0.9% in November, a slide of 0.5% is predicted for December. Also here,  loans should eventually rise when QE enters in full force, or at least that’s what the ECB expects.
  10. German Retail Sales: Friday, 7:00. In the past two months, German consumer bought more than economists had anticipated. After a rise of 1% in November, another rise of 0.4% is predicted for December.
  11. French Consumer Spending: Friday, 7:45. Europe’s second largest economy saw an increase of 0.4% in consumer spending in November, better than expected and somewhat encouraging. the  same pace is expected now.
  12. Spanish CPI: Friday, 8:00. Spain is experiencing outright deflation for many months. The y/y drop in prices  deteriorated    to -1.1% in December because of oil prices and is now expected to see a 1.5% fall. Also this is an input for  the euro-zone  CPI number.
  13. Spanish GDP: Friday, 8:00. Europe’s fourth largest economy saw 4 consecutive quarters of growth with a solid 0.5% q/q rate in Q3. The preliminary data for Q4 is expected to show the exact same pace. Note that Spanish politicians provide indications about growth ahead of time, so there aren’t too many surprises here.
  14. CPI: Friday, 10:00. The euro-zone already fell into deflation back in December, with a y/y drop of 0.2% and this was a key ingredient in the QE decision. Oil prices further weighed on headline CPI, and a fall of 0.5% is predicted now. And while core CPI is still positive, it is also at record low levels. After 0.7% in December, the preliminary figure for January is likely to show a slide to 0.6%.
  15. Unemployment rate: Friday, 10:00.  The unemployment rate in the euro-zone is high, at 11.5%, and is not expected to change this time. A rise in employment is critical to spur demand.

* All times are GMT

EUR/USD Technical Analysis

Euro/dollar started the week below the 1.1650 line (mentioned last week).  A last attempt to move higher already resulted in a total collapse  following the QE decision. The initial collapse was followed by recovery attempt that reached the 1.1373 level. The pair then fell deeper and hit 1.113 before recovering and closing at 1.1202.

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

Technical lines from top to bottom:

We start at lower ground once again.  The post crisis low of 1.1867, should be watched.  1.1750 was a low point the pair reached in a breakdown in early January 2015. The round number of  1.17 was the launch value of the pair in 1999 and has a symbolic meaning.

Below, we have the post Swiss bounce of 1.1650 which worked as resistance. Lower,  1.1540 provided support in mid January.

Below the round number of 1.15 we have  the pre-QE low of  1.1460  that could work as resistance.

1.1373 was the low line seen in November 2003 and proved to work as resistance lately. Below the initial low point of 1.1313 we have 1.1290 which was the post collapse recovery limit.

The round number of 1.12 is now the pivotal line in the range. It is followed by the fresh low of 1.1113 which is nearly 0.90 on USD/EUR.

The next line is the round  1.10. It is followed by 1.0760, which was the low point in both July and August 2003.

Below this point we have the round numbers of 1.05 and 1 – EUR/USD parity, which is already eyed by some analysts.

I reamin  bearish on  EUR/USD

Draghi not only beat the expectations  that were created via leaks, but also indeed impressed with a massive program that could be open ended. The money printing machine is set to  weigh heavily on the euro. Eventually, a weaker euro together with cheap oil are set to lift inflation, growth and  consequently the euro, but  we will likely see more falls before the pair rises.

For this week, Greek elections set to go for SYRIZA,  could cause worries and we will get another reminder of why QE was necessary via inflation numbers. We are probably also going to get a reminder of the monetary policy convergence: the Fed is set to release its statement, and rate hikes are probably still on the docket for 2015, a policy that is the other extreme from the European one.

In  our latest podcast, we do an  ECB QE rundown, SNBomb effect on brokers, surprise cut in Canada & Iranian oil:

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Further reading: