EUR/USD Forecast July 8-12

EUR/USD had another week of falls, due to a dovish turn in the euro-zone and more reasons for hawkishness in the US. Eurogroup meetings, industrial production figures are the main market-movers this week. Here is an outlook on the main events ahead and an updated technical analysis for EUR/USD, now at lower ground.

At the Press conference following the ECB rate decision, President Mario Draghi confirmed recent rumors about adopting forward guidance on rates, saying the ECB “expects all interest rates to remain at present or lower levels for an extended period of time”. The Banks Governing Council is planning to do what no board has ever done before: pre-committing on future interest rate policy. Will this extraordinary step ignite the EU recovery? It sure weakens the euro. And on the other side of the Atlantic, a strong jobs report in the US raises the chances for a tapering QE, sooner than later. The direction seems clearer.

Updates:

• EUR/USD began the week struggling in low ground, far from resistance at 1.2890 as the echoes from the previous week weigh. Draghi is highly anticipated.
• Draghi didn’t say anything new. EUR/USD is limited under 1.2880. See a video discussing levels in EUR/USD and in other currencies.
• German releases disappointed on Monday. Trade Balance fell from 177 billion euros to 14.1 billion, while Industrial Production plunged from 1.8% to -1.0%.
• Eurozone Sentix Investor Confidence came in at -12.6 points. The forecast stood at -11.5 points.
• The Eurogroup met and decided to release to Greece 3 billion euros in bailout funds, with more to follow in August and October.
• The French government budget deficit rose to -72.6 billion euros.
• Spanish PM Mariano Rajas  has been linked to a corruption scandal, and the repercussions could topple the government.
• EUR/USD collapses, breaks 1.28 – Dovish comments by a German ECB member are the trigger.
• EUR/USD breaks below long term uptrend support. Here are 4 reasons why this may be the real thing.
• Well, EUR/USD is recovering, but it still remains on the back foot. French industrial production fell by 0.4% while Italy’s output rose by 0.1%.
• EUR/USD is on the rise, challenging 1.30.  FOMC Minutes  send a confusing message  and  weaken the US dollar.  Bernanke then sends the dollar plunging with dovish comments on the US economy.
• EUR/USD rushes all the way up to 1.32 in the aftermath of Beranke during the Asian session, only to retreats down to 1.3030 in the European session. The roller coaster continues.
• Here is a fresh, post Bernanke technical analysis for EUR/USD.
• As Bernanke and his colleagues mentioned, jobs are important.  See how to trade the US jobless claims with EUR/USD
• German inflation numbers continue to look weak, as WPI posted a 0.4% drop, the fourth straight decline.
• French CPI rose to 0.2% from 0.1%.
• The ECB Monthly Bulletin reiterated that there was more room for interest rate cuts.
• US Unemployment Claims was a disappointment, climbing to 360 thousand. The estimate stood at 342 thousand.
•  Eurozone Industrial Production will be released on Friday.
• EUR/USD was trading in the high-1.30 range.
• Forex Analysis: EUR/USD Pulls Back after Sharp Surge
• EUR/USD July 12 – Modest Losses as Markets Await Key US Data
• More:  USD rally not looking so solid as QE tapering story loses momentum
• Portugal is considering renegotiating the bailout, and this weighs on the euro. EUR/USD is getting closer to 1.30.
• See ho to trade the US consumer confidence with EUR/USD.
• US consumer sentiment came out below expectations, and EUR/USD ticks higher.

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

1. German Bundesbank President speaks: Sunday, 9:30. Jens Weidmann, Germany’s central bank chief is scheduled to speak in Aix-en-Provence. His words can cause volatility in markets. In one of his speeches he remarked that the EU debt crisis will continue to occupy Europe over the next decade.
2. Eurogroup Meetings: Monday.  The Eurogroup will re-adjourn in Brussels to discuss the continuation of the Greek bailout plan. Greece has to reassure its lenders it can meet the terms of its international bailout in order to receive the next installment of 8.1 billion euros.
3. German Trade Balance: Monday, 6:00. German trade balance improved in April, amid stronger imports and exports, indicating the Eurozone no.1 economy is back on recovery path. Surplus edged up to 17.7 billion euros from 17.6 billion in March. Exports advanced by 1.9% reaching 93.1 billion euros while imports rose by a slightly stronger 2.2% to 75.4 billion euros. On a yearly base, exports grew by 8.5% while imports advanced by 5.2%. A small drop to 17.4 billion is expected now.
4. Sentix Investor Confidence: Monday, 8:30. Eurozone investors’ confidence climbed in June amid rising optimism that the economy will return to growth this year the debt crisis would be resolved. The index advanced to minus 11.6 from minus 15.6 in May, while economists expected an increase to minus 11.3.  A small decline to -11.5 is forecasted.
5. German Industrial Production: Monday, 10:00. German industrial  production  edged up in April due to a boost in construction activity. Production climbed 1.8%, after it gaining 1.2% in the preceding month. Analysts expected no change. The German economy is gradually recovering although there will be some obstacles on the way. Industrial production is expected to fall 0.5% this time.
6. Mario Draghi Speaks: Monday, 13:30.  Mario Draghi President of the ECB is expected to speak on Economic and Monetary Affairs of the European Parliament, in Brussels. His words will cause volatility in the markets in light of his recent talk about the ECB’s intention to control rates.
7. ECOFIN Meetings: Tuesday. Lithuanian Finance Minister Rimantas Šadžius will chair the ECOFIN meetings starting at July 9. In the last ECOFIN meetings held on June 27, EU finance ministers reached an understanding on the Banking Recovery and Resolution Directive. This important political agreement enables to start negotiations with the European Parliament (EP) to form a Banking Union which will help secure financial stability in the EU. The Banking Recovery and Resolution Directive are the main aims of these meetings.
8. German Final CPI: Wednesday, 6:00. The flash estimate of consumer prices in May was unrevised German inflation in May increased 0.4% within expectations. Another increase of 0.1% is likely.
9. French and Italian Industrial Production: Wednesday. French industrial production advanced more than-expected in April, rebounding from the 0.6% plunge in the previous month boosted by transportation items. Industrial production rose 2.2% far beyond the 0.2% increase projected by analysts. Transportation materials output edged up 5.7%. Meanwhile, Italian industrial  output  unexpectedly dropped in April, indicating the recession continues into the eighth quarter. Production fell 0.3% following a 0.9% decline in March. Economists expected a small rise of 0.1%. French industrial production  is expected to fall 0.5%, while Italian industrial production is expected to climb 0.4%.
10. German WPI: Thursday, 6:00. Germany’s wholesale price index plunged unexpectedly in May, down 0.4% from a 0.2% decline in April. Analysts expected Germany’s Wholesale Price Index to rise 0.3% last month.0.3%
11. French CPI: Thursday, 6:45. French consumer prices index climbed 0.1% in May due to an increase in service prices, following a 0.1% decline in the previous month.  On a year-on-year basis, the country’s prices increased 0.8%. However the drop in housing-related services offset the rise in other service prices. A rise of 0.1% is anticipated.
12. ECB Monthly Bulletin: Thursday, 8:00. The European Central Bank said in its last meeting it will monitor very closely all incoming economic data, reassuring banks that monetary policy will remain  accommodative   In 2014 domestic demand is expected to rise in accordance to the fiscal consolidation, but domestic demand is still fragile due to weak labor market
13. Industrial Production: Friday, 9:00. The Euro-zone industrial output expanded 0.4% in April contrary to predictions of a 0.2% fall and following a 0.9% advance in the previous month. However, despite encouraging data, conditions remain poor for the Eurozone. Labor markets remain stressed keeping consumer spending subdued. The ECB maintained interest rates unchanged at record lows and slightly lowered its economic outlook for the euro area this year, saying the economy would shrink 0.6% in 2013 but grow again by 1.1% next year. A decline of 0.2% is forecast.  

*All times are GMT

EUR/USD Technical Analysis

Euro/dollar started the week by stabilizing above the 1.30 line (mentioned last week). A nice move higher ended with a fall, and recovery attempt didn’t work out. The pair initially fell to 1.2890, and a second round saw the pair go as low as 1.2806, just above the 1.28 line.

Technical lines from top to bottom:

We start from lower ground this week. The round line of  1.34  served in both directions when the pair traded in higher ground. The pair temporarily breached this line in June.  1.3350 provided support when the pair traded higher in February and now serves as a pivotal line.

1.3255  provided support during January 2013 and also beforehand. A recovery attempt failed to reconquer this line at first, but now this line is strong support.  1.32 is a clear top  after capping the pair twice in April 2012 and then in May. This is a round number as well.

1.3160, which separated ranges in May 2013 is strengthening once again and worked perfectly well as a cap to a recovery attempt in June.  1.3100 is worked as temporary resistance in December 2012 and is becoming more important once again, after capping a recovery attempt in June and then in July.

It is followed by 1.3050, which proved be strong support in May 2013, defending the round number in more than one occasion, but it is less significant now.  The very round 1.30  line  was a tough line of resistance. In addition to being a round number, it also served as strong support and recently worked as a pivot line.

1.2940 is the next line of support. It worked as such during April and May 2013.  Lower,  1.2890  worked in both directions during 2012 and was the beginning of the uptrend support line. It is becoming more important, as a clear separator of ranges.

1.2840 worked as a cushion for the pair during May 2013 and is a pivotal line at the moment.  Lower, the round number of 1.28 was the bottom of a long term wide range in 2012 and its breach in May 2013 was not confirmed. The fall of early July tested this line.

Below,  1.2750  worked as a separator of ranges during November, and stopped the pair’s drop in March. This is a key line on the downside, as clearly shown in the first week of April.  This is followed by the round number of 1.27, which is a minor line.

1.2660 follows closely. This was the low in November 2012 and where the second uptrend support begins. The last line for now is 1.26, which capped the pair back in early September.

One long term support line broken, the other worked

The thick black lines on the chart show two long term uptrend support lines which gradually move upwards. They were formed from lows the pair reached in recent months. The first line was clearly and convincingly broken in the aftermath of the NFP, but the second line worked perfectly well and the pair bounced.

I remain bearish on EUR/USD

Draghi indeed zigzagged to the downside this time, but it was much more significant than previously. The commitment for these rates or lower for a long time hasn’t been fully played out, and the euro could certainly extend its falls. This move overshadows some signs of improvement from Germany and Spain and the will to keep the debt crisis under control until the German elections in September.

The positive US non-farm payrolls report, and the upwards revisions, strengthen the notion that QE tapering will come in September, unless there is a major disaster. The difference between central banks hasn’t been that wide for a long time.

More technical analysis:  EUR/USD Wavers after 1.3000 Breakdown – by James Chen

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