EUR/USD Forecast July 21-25

EUR/USD lost ground in a week that saw the odds turn against it. The Bundesbank  Monthly Report, Manufacturing and Services PMIs and the German Ifo Business Climate are the major events on our calendar. Here is an outlook on the highlights of this week and an updated technical analysis for EUR/USD.

Germany’s  ZEW Economic Sentiment registered another slide, reaching a disappointing 27.1 –  a 19 month low. Increased geo-political risks in form of the Ukraine crisis as well as more worries from Portugal also weighed on the common currency. In the US, Yellen’s testimony helped the dollar just a bit, as US data was mixed. After  dipping below 1.35, the pair eventually recovered above the line, but remains on low ground. What is the next direction for the pair?

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

1. German PPI: Monday, 6:00. German producer prices declined more than expected in May, down 0.2%, due to a sharp fall in energy prices. The reading was contrary to predictions for a 0.2% rise and followed a 0.1% decline in the previous month. On a yearly base, PPI declined 0.8% from 0.7% in May 2013. PPI is expected to gain 0.1%.
2. German Bundesbank  Monthly Report: Monday, 10:00. German Bundesbank report in June warned that economic growth may slow in the second quarter but should expand again in the third quarter due to stronger demand for  construction  and a positive mood among consumers. However the growth rate in the third quarter is not expected to match the strong growth registered in the first quarter. However the central bank akso reported that the continuation of economic expansion also depends on the Ukraine crisis not escalating further.
3. Consumer Confidence: Wednesday, 12:00. Eurozone consumer confidence dropped 0.3% in June, reaching -7.4. The reading was worse than the -6.5 predicted by analysts. Nevertheless, confidence has improved steadily since the 42-month low of -26.7 in November and continues to improve hand in hand with economic growth. Consumer confidence is expected to reach -6 this time.
4. Spanish Unemployment Rate: Thursday, 6:00. Spain’s unemployment rate increased in the first quarter, rising to 25.9% from 25.7 in the last quarter of 2013 because of the cold winter season badly affecting tourism-dependent sectors. Furthermore, Spain’s work force has contracted by 187,000 to 22.884 million. The number of employed fell by 184,600 to 16.961 million, the lowest first quarter drop in six years. Despite the pickup in economic activity, unemployment remains at high levels since 2012. Prime Minister Mariano Rajoy has reiterated that job creation is his top priority after pushing through a labor market reforms, reducing a budget gap and rescuing the country’s banks. Overall, the improvement in the job market is expected to show in the next quarters.Spanish Unemploymentrate is expected to remain 25.9%.
5. Flash manufacturing and services PMIs: Thursday Business activity in the euro zone declined for a second straight month in June, indicating recovery continued to be modest while France struggling to achieve economic growth. Both manufacturing and services sectors fell in May. Flash Manufacturing PMI dropped to 51.9 from 52.2 in April, while the Services sector dropped to 52.8 following 53.2 in the previous month.  Activity in Germany’s services sector slowed 56.0 to 54.8 while the manufacturing sector inched up from 52.3 to 52.4. The main concern was the ongoing weakness France. The private sector activity declined to 47.8 from 49.6 remaining in contraction, while the services PMI fell to 48.2 from 49.1 in May. Both figures were lower than expected. The European Central Bank provided additional stimulus at their June 5 meeting, saying more will come if economic conditions don’t improve. However the surveys also noted that economic growth would pick-up in the coming quarters. French manufacturing is expected to rise to 48.5, while services is expected to reach 48.9, German manufacturing is predicted to improve to 52.2 and services to 52.7, the Eurozone manufacturing is projected to reach 52 and services to 52.7.
6. GfK German Consumer Climate: Friday, 6:00. The GfK German consumer confidence edged up to 8.9 in July from 8.6 in June. However, while consumer confidence improved, business sentiment declined, indicating business and consumer confidence are different things; the industrial sector is worried about foreign effects such as the Ukraine crisis and its negative bearing on exports as well as future orders, while domestic consumers do not relate to foreign issues. German consumer confidence is expected to remain at 8.9.
7. German Ifo Business Climate: Friday, 8:00. German  business  sentiment weakened more than expected in June marking 109.7 following 110.4 in May amid concern over tensions in Ukraine and  Iraq. Sentiment fell for the second consecutive month, while economists projected a stronger reading of 110.3. German firms are worried that tougher actions against Russia will hurt their businesses. More than 6,000 German companies are active in  Russia  and business and trade bodies have warned that an escalation in tensions over Ukraine would result in catastrophic losses for firms. German  business  sentiment is projected to reach109.6.
8. M3 Money Supply and Private Loans: Friday, 8:00. Eurozone money supply increased in May by 1.0% following a 0.7% increase in April, but lending to private sector continued to decline. The three-month average of the annual growth rates of M3 in the period from March to May came in at 0.9%, compared with 1% in the period from February to April. Loans to the private sector fell 2% annually, more than the 1.8% drop posted in April. Lending to households slid 0.7% versus flat growth seen a month ago. Eurozone money supply is predicted to rise1.1%, while private loans are expected to contract 1.8%.

* All times are GMT

EUR/USD Technical Analysis

Euro/dollar  kicked off the week with an attempt to reach 1.3650 (mentioned last week). After the goal was not  achieved, it began falling and settled in the 1.35 – 1.3550 range. A late dip below 1.35 proved to be a false break.

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

Technical lines from top to bottom:

1.3785 worked as support for the pair during April and served as resistance beforehand. 1.3740, which provided some support at the end of 2013 is now key support to the downside.

The round number of 1.37, is another support line after capping the pair in December yet it is weakening. 1.3677 was the peak in June so far, and could turn into important resistance.

1.3650  worked as strong resistance during May and June but is weakening now.  1.3585  served as the bottom of the range and still carries weight despite the breakdown in June. 1.3550 worked as support in January  but is now weakening.

The round number of 1.35 worked as the last cushion in June and is strong also due to the roundness. 1.3450 worked as resistance in August 2013 and as support in September and October. It is now a key line on the downside.

The round number of 1.34 was last seen in December as a stepping stone for the pair on its way down. The last line for now is also a round number: 1.33, that worked well during 2013.

Downtrend resistance

As the thick black line on the chart shows, the pair is trading under downtrend resistance since it peaked near 1.40  in early May. The line is respected on the daily chart. The pair drifted away from the line.

I turn from bearish to neutral  on  EUR/USD

While the general direction of the pair remains down, due to a long list of reasons, euro/dollar could take a break before the next move and consolidate around 1.35. US data has turned mixed and could remain so for another week. A drop in IFO will not be so surprising after the weak ZEW number. Assuming the Ukraine-Russia and Israel-Hamas conflicts will take just a small  step back from the headlines, we can see a return of stability. For now.

More:

• EUR/USD in downtrend as USD is on the move – Elliott Wave Analysis
• Euro Looks To Trade Higher Against New Zealand Dollar

If you are interested 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
• For the kiwi, see the  NZDUSD forecast.