EUR/USD Forecast Jun 30-Jul 4

EUR/USD  did not go too far in the last full week of the quarter, and remained in range. It might be just the time now for the pair to pick a direction: the ECB meeting is undoubtedly the highlight of the week, yet also inflation numbers will eb closely watched.  Here is an outlook on the highlights of this week and an updated technical analysis for EUR/USD.

Forward looking  PMIs in the euro-zone  fell short of  expectations, especially in France. Germany is not doing too well either, with a  drop in the IFO  Business Climate. However, German inflation is finally moving up and this could calm the ECB. In the US, there seems to be an even clearer separation between the  horrible first quarter  (as reflected in a 2.9% annualized contraction of GDP) and the more upbeat economic activity in Q2, as seen in  strong home sales  and consumer confidence.

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

1. German Retail Sales: Monday: 7:00. German retail sales plunged 0.9% in April, following a 0.7% drop in the previous month, contrary to market forecast for a 0.4% rise. On an annual basis, the index increased 3.4% after sliding 1.9% in the prior month. Analysts had expected a pick-up of 1.5%. Retail sales are expected to rise 0.8% this time.
2. M3 Money Supply: Monday, 8:00.  The amount of cash circulating in the Eurozone increased 0.8% in April, following a 1.0% rise in March, accompanied by a slowdown in lending. Indicating sluggish economic activity and weak consumer spending. These figures prompted the ECB to make its move and introduce negative deposit rates on banks to spur lending in the Eurozone. Cash circulation is expected to increase by 0.7%.
3. Private Loans: Monday, 8:00. Lending to households and companies declined further in April falling 1.8% despite the European Central Bank’s accommodative  monetary policy. Lending remained muted despite the central bank’s efforts to put pressure on banks to increase their lending. Lending to households  is expected to decline by1.7%.
4. Inflation data: Monday, 9:00. Euro zone inflation declined unexpectedly in May, reaching 0.5% from 0.7% posted in April as the European Central Bank prepared its monetary policy changes to boost growth. The weak inflation reading increased concerns for deflation. Meanwhile, core inflation, excluding energy, food, alcohol and  tobacco, dropped to 0.7% in May from 1.0% in April. Energy prices remained flat on the year, showing no decline for the first time in five months.    CPI Flash Estimate  is expected to rise by 0.6% while core estimate is expected to increase 0.7%.
5. Manufacturing PMI: Tuesday. Euro zone manufacturing output weakened more than initially expected in May, reaching 52.2 from 53.4 in April. Germany’s strong reading failed to offset the contraction in France. This decline was another incentive for the ECB to start acting and cut its deposit rate below zero, reduce its main borrowing rate and launch a refinancing operation aimed at businesses. Italian manufacturing activity continued to expand in May, came in at 53.2 following 54 in April, falling below expectations for a 54.3 reading, but still showing expansion. Spain’s manufacturing sector grew at the fastest rate since April 2010 rising to 52.9 from 52.7 in the prior month and companies increased their purchasing to a four year high. Spain manufacturing PMI is expected to reach 53.2, Italy is predicted to increase to 53.5 and the Eurozone manufacturing is expected to remain at 51.9.
6. German Unemployment Change: Tuesday, 7:55. German unemployment unexpectedly increased a seasonally adjusted 23,937 to 2.905 million in May. This increase was the first in six months indicating a slowdown in Germany’s economy. However the unemployment rate remained unchanged at 6.7%, the lowest level in more than two decades. The increase in jobless claims went hand in hand with the decline in business confidence. The excellent pace of growth witnessed the first quarter will be hard to achieve in Q2, but analysts still believe Germany is still the leading force in the EU block. The number of German unemployed is expected to decline by 9,000.
7. Unemployment Rate: Tuesday, 9:00. The Eurozone unemployment rate improved to 11.7 % amid significant signs of improvement in Portugal and Ireland. The number of unemployed in the 18 member states declined by 76,000 in April from March and 487,000 from a year earlier. The unemployment rate among youths also declined by 0.1% in April. Likewise, unemployment improves in the EU’s 28 Member States as a whole declining by 0.1% to 10.4%. The Eurozone unemployment rate is expected to remain unchanged.
8. Spanish Unemployment Change: Wednesday, 7:00. The number of unemployed in Spain declined a seasonally adjusted 111,900, broadly in line with market forecast following 111,600 drop in April, indicating a continuous improvement in Spain’s economy. The number of unemployed in Spain  is expected to drop further by  97,300.
9. Services PMI: Thursday. The Services sector in the Eurozone declined slightly in May to 53.2 following 53.1, posted in the prior month, missing market forecast  for 53.5. Meanwhile, the Spanish Services sector declined slightly to 55.7 compared to 56.5 released in April and a consensus estimate of 56.1. Italian services PMI reached 51.6, higher than the 51.1 posted in April and higher than the51.4 expected by analysts. Overall, despite the slight declines, the readings are still in expansion territory indicating the Euro block continues its journey to recovery. Services sector in Spain is expected to rise to 56.3, Italy to 52.3 and the Eurozone is expected to clime to 52.8.
10. Retail Sales: Thursday, 7:00. Eurozone retail sales edged up unexpectedly in May, increasing 0.4% from a 0.1% rise in March mainly because of food sales. Analysts expected sales to increase 0.1% in April. Domestic demand in the Eurozone has been subdued due to high unemployment rate and uncertainty over the future pace of growth following the slow growth in the first quarter. However April sales increased both on the month and on the year for the fourth consecutive month, suggesting a mild growth trend. Eurozone retail sales is expected to gain 0.3% this time.
11. Rate decision: Thursday: 11:45. The European Central Bank (ECB) swung into action in its June meeting, deciding to cut interest rates from 0.25% to 0.15% in an attempt to stop the crawling Eurozone inflation from turning into deflation, and also moved its deposit rate into negative territory from 0% to -0.10% in hope that banks will be compelled to lend more. The Central bank’s decision was widely anticipated. The ECB is not expected to change its monetary policy.
12. German Factory Orders: Friday, 6:00. German industrial orders jumped 3.1% in April following a 2.8% decline in March, indicating demand is rebounding. The increase was mainly driven by foreign orders, indicating good prospects for expansion in factory output during the second quarter. Export orders  jumped 5.5 %while domestic orders remained steady. Analysts expected a smaller increase of 1.3%. The unexpected climb may enable German economy to match  the high pace of growth seen in the first quarter. German industrial orders  is expected to decline by 0.8%.

* All times are GMT

EUR/USD Technical Analysis

Euro/dollar  began the week by getting comfortable above the 1.3585 line (mentioned  last week). An attempt to  tackle 1.3650 was unsuccessful and the pair returned to trade in this range.

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

Technical lines from top to bottom:

1.3830, which was a long serving 2013 peak comes back into the focus after capping the pair in March 2014 and serving as a clear separator several times. 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.

I  remain bearish on  EUR/USD

A month after setting the historic negative deposit rate and after announcing a series of steps, the euro is still too strong and this weighs on inflation and  potential growth. While the ECB is not likely to introduce anything new, Draghi is likely to attempt to talk down the euro. In the US, the “spring bounce” in the economy could now result in a 5th month of +200K job gains, strengthening the US dollar.

All in all, there is  now more room to the downside for the pair. More:

• Forex Analysis: EUR/USD Rebounds within Bearish Retracement
• More Losses To Follow For EURJPY?

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.