EUR/USD traded according to Greek headlines for another week, and managed to end it on a positive note, as a deal finally seems close. Apart from a potential end to the deep crisis, we will also hear from a key player in the crisis: the ECB, in its rate decision, among other events. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.
The week began with another gap to the downside on the clear NO vote in the Greek referendum. From there we had another fill of the gap and tense trading as preparations were made for what seems as the real deadline: the EU Summit on Sunday. Pressure for debt restructuring mounted and eventually Greece submitted its proposals, which consisted of a capitulation on austerity but also a request for a longer plan, an investment plan and most importantly debt relief. This triggered a relief rally, but we need to be cautious before saying the story returns to the back burner. There are troubles in the talks during the weekend.
Apart from Greece, German factory orders disappointed but the Sentix investor confidence surprised with a rise. In the US, a miss on jobless claims was dismissed. The Fed minutes showed caution towards a rate hike and were dovish in general, citing also Greece.
[do action=”autoupdate” tag=”EURUSDUpdate”/]EUR/USD daily graph with support and resistance lines on it. Click to enlarge:
- Weekend talks on Greece: Eurogroup on Saturday and EU Summit on Sunday (could be cancelled) and tentative Eurogroup on Monday. As EU top official Donald Tusk described it, this may be the final deadline to reach a deal. With Greek austerity proposals basically bowing to the creditors’ demands, there is much optimism that a deal is indeed done. The Eurogroup’s blessing on Saturday could seal it. If not, there may be trouble. With an endorsement from France, the key remains in Merkel’s hands and the hot topic remains debt restructuring, as always. If she agrees, this would be a retreat for Germany, but if she refuses, Germany will find itself alone against France and the IMF (which will only sign a deal that consists of debt restructuring), showing that it only wanted Tsipras out and never negotiated in good will. Assuming a deal, we could get a small relief rally, as this is already priced in. If there is no deal, a big crash could occur.
- German Final CPI: Tuesday, 6:00. According to the preliminary release, prices dropped 0.1% m/m, worse than expected for the month of June. This will likely be confirmed in the final read.
- German ZEW Economic Sentiment: Tuesday, 9:00. This early report on business sentiment dropped to 31.5 points. The consecutive drops are worrying, but sentiment still remains positive. A small slide to 30.6 points is predicted for July, but given the Greek crisis, a bigger drop cannot be ruled out. The all European number carries expectation for a drop from 53.7 to 51.1 points.
- Industrial Production: Tuesday, 9:00. Output advanced by 0.1% in April. The figure for May is expected to show a gain of 0.2% in production, still a modest advance for the old continent.
- French CPI: Wednesday, 6:45. France has seen a rise of 0.2% in prices in May. A smaller rise of 0.1% is on the cards for June. This feeds into the final CPI.
- Final CPI: Thursday, 9:00. According to the preliminary numbers for June, headline inflation rose 0.2% in June while core inflation rose by 0.8%. These are weaker numbers than in May. No change from the initial estimates is expected.
- Trade Balance: Thursday, 9:00. The euro-zone enjoys a wide trade surplus, and this keeps the euro bid. Yet after a positive 24.3 billion figure in April, a slightly narrower figure is on the cards now: 22.3 billion.
- ECB rate decision: Thursday, 11:45 with the press conference at 12:30. The European Central Bank played a key role in the Greek crisis, basically forcing banks to shut down once negotiations broke down and Greece went to a referendum. This role will be questioned by reporters. For markets, perhaps the bigger focus is on plans regarding QE. Assuming a deal, will the ECB go all-in into Greek bonds? Will QE be expanded given the repercussions the crisis had on the continent? In addition, the assessment of the Bank on inflation and growth developments is also key, even though no forecasts are expected now.
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar gaped lower but managed to find some ground later on. It eventually catapulted higher from the 1.1050 level (mentioned last week).
Live chart of EUR/USD: [do action=”tradingviews” pair=”EURUSD” interval=”60″/]
Technical lines from top to bottom:
The round level of 1.15 has a psychological impact and it also worked as support in the past. 1.1450 capped the pair during February’s recovery attempts and also during May.
Below, the historic line of 1.1373 (from November 2003) still has a role as resistance. 1.1290, which was a peak in April and support in February is significant resistance.
1.1190, just below the round number of 1.12, proved its strength as a double top in June 2015. It is followed by a low seen in January of 1.1113 which is nearly 0.90 on USD/EUR.
1.1050 returns to the chart after serving as a stepping stone for the pair to rise to higher ground. Also 1.0910 makes a comeback after being the low point in July so far.
1.0865 provided some support in late May and is weak support before a stronger line: 1.0815 which worked in both directions is the low of May and important support.
The next line is 1.0760, which was the low point in both July and August 2003. 1.0715 joins the chart after temporarily capping the pair in April 2015.
1.0660 worked nicely as support in April 2015. 1.0615, which worked in both directions during March 2015 and is better at support.
Another minor line is 1.0550, for a role as support in the same period of time. The very round level of 1.05 served as support during 2003. The lowest level in over 12 years is 1.0462 and this makes it critical support.
I remain bearish on EUR/USD
A Greek deal seems to be priced in: any delay or a failure to cut a deal will makes things messy not only for Greece but also German-French relations and for the value of the euro. Assuming a deal is done, we can expect only a short term rally. The damage has been done, and not only for Greece. We will probably hear some dovish words from Draghi and this brings us to the main driver: monetary policy divergence that now returns to the forefront. Worries about Greece were expressed in the Fed minutes. If Greece is no longer a worry, there are less hurdles for the Fed to hike in September.
In our latest podcast we clarify Greece and also China, oil, AUD 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
- For the kiwi, see the NZDUSD forecast.
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