EUR/USD had a wild week, moving on the deterioration of the crisis, but not always in the most straightforward manner. The new week begins with the Greek referendum and continues with data from Germany and France. Greece will certainly remains in the headlines throughout the week. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.
Greek summary: the announcement of the referendum was followed by the Eurogroup rejecting a short term extension, the ECB capping assistance to Greek banks and triggering capital controls. This escalation resulted in a Sunday gap for the euro, but it found ways to recover and even rally. We then had ongoing negotiations, the eventual default of Greece to the IMF, more offers as both sides stopped talking and awaited the Greferendum, the IMF came out suggesting debt restructuring. For the latest, see: Greek crisis – all the updates in one place
In other news, euro-zone inflation slowed to 0.2% as expected and PMIs also came out within expectations. The US gained 223K jobs in June, slightly below expectations but revisions were negative and the bigger disappointment came from wages. Nevertheless, the Fed seems to be on track for a hike in September, but Greece is having a growing impact also on Yellen.Updates:
EUR/USD daily chart with support and resistance lines on it. Click to enlarge:
- Greek referendum: Sunday. Exit polls expected in the European afternoon, well before markets open, with full results later on. The referendum, now dubbed #Greferendum, has been announced by Greek PM Alexis Tsipras on June 26th and is on the creditors’ proposal that was described by Greece as “take it or leave it”. The Greek government rejected it and calls for a vote against it. It is unclear if this proposal is still on the table. Some European leaders have described it as a vote on euro-zone membership. What’s clear is that it is a vote on the current government’s future. A Yes vote, which is more likely due to the deteriorating situation in Greece, will likely result in a relief rally, as it opens the door to a new government that will accept whatever it’s told. A No vote complicates the situation and could result in a big fall for the euro. The referendum is one climax, but the Greek crisis is set to accompany us throughout the week. Polls look too close to call.
- German Factory Orders: Monday, 6:00. Europe’s powerhouse has seen a rise of 1.4% in April, better than expected. Despite usually being a volatile figure, this indicator has an impact. No change is expected now.
- Retail PMI: Monday, 8:10. Markit’s measure for the retail sector finally edged up to the growth zone. It topped 50 points in May and hit 51.4 points. A similar number is on the cards for May.
- Sentix Investor Confidence: Monday, 8:30. This survey of 2000 analysts and investors fell for the second time in June and fell to 17.1 points, below expectation. Nevertheless, it remained in positive territory, reflecting optimism. A score of 15.6 points is on the cards now.
- German Industrial Production: Tuesday, 6:00. As with factory orders, also industrial output was good in April, advancing 0.9% and enjoying an upwards revision. A smaller change is on the cards now: +0.1%.
- French Trade Balance: Tuesday, 6:45. The continent’s second largest economy has seen its trade deficits shrinking from the highs. In April, it reached a level of 3 billion euros, the lowest since 2009. A similar number is on the cards now: a deficit of 3.3 billion.
- German Trade Balance: Thursday, 6:00. Contrary to France, Germany enjoys surpluses in the euro era. This surplus reached 22.3 billion euros in April, higher than expected and the highest so far this year. For May, a surplus of 20.6 billion is expected.
- French Industrial Production: Friday, 6:45. In the past two months, France reported a contraction in the most recent industrial output data, but these were countered by positive revisions. For April, production fell by 0.9%. A bounce back is on the cards now: +0.5%.
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar gaped higher on Greek hopes, but things became messier later on. The pair began descending and consolidated and “hugged” the 1.12 level (mentioned last week).
Live chart of EUR/USD:
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.
1.1030 was a low seen in July after the pair stabilized, and it replaces the 1.1050 line. Below, the post Greek escalation low of 1.0950 serves as support.
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
Given the closed banks in Greece, the referendum could end in a YES vote, but this is very close This is likely to provide for a short term rally. But then what? This will worsen the political situation in Greece and that will not be much better for negotiations than a NO vote. In addition, we already know that Greece’s creditors are split on debt restructuring. The Greek crisis is here to stay and this weighs on the euro, even if it isn’t always a linear move. And even if the crisis moves away from the headlines, we are still left with diverging monetary policies and diverging growth between the euro-zone and the US. The Fed is still on track to raise the rates in September in the same week that the ECB expanded its shopping list, funded by printed euros.
In our latest podcast we feature a Greferendum preview, NFP review and more
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