EUR/USD Forecast June 10-14

EUR/USD moved higher in a turbulent week, riding on dollar weakness and on a calming message from Draghi. Industrial production, ECB Monthly Bulletin and Inflation data are the major events this week. Here is an outlook on the main events ahead and an updated technical analysis for EUR/USD.

Mario Draghi said there is no need for negative rates now and this certainly helped the euro. Together with a series of mediocre figures in the US, EUR/USD broke higher, but stalled at a key level. Germany continued to falter moving between positive and weak releases. German Factory Orders  slumped 2.3% in April worse than expected while industrial output leaped. A more positive trend was evident in Spain with relatively strong employment readings:  Unemployment Change plunged by 98,300 in May, the biggest drop in record for May, indicating a positive trend in the Spanish economy, although this could be a summer effect. Will we see further gains now?

Updates:

• EUR/USD starts the week by consolidating the sharp gains from Friday. Italian GDP was marginally revised to the downside.
• S&P changed the credit outlook for the US from negative to stable. This helped the dollar and sent EUR/USD under 1.32.
• French Industrial Production sparkled with a gain of 2.2%. Italian Industrial Production posted a decline of -0.3%.
• Eurozone Sentix Investor Confidence rose but remains deep in negative territory. The indicator posted a reading of -11.6 points. The German Constitutional Court will rule on the constitutionality of the OMT, the ECB’s bond-buying rescue program.
• EUR/USD is trading in the mid-1.32 range.
• Technical update:  EUR/USD falls from resistance, forming double top  – and in the meantime, the euro lost its correlation with European stock and peripheral bonds.
• EUR/USD  Tests 1.33 as Euro Points Upward – although it’s having a hard time there.
• Updated Elliott Wave Analysis:  EURUSD Is Bullish But Technical Resistance Is Near; 1.3350/1.3400
• French Final Non-Farm Payrolls declined by 0.1%, matching the forecast.
• German Final CPI gained 0.4%, as expected. French CPI rose 0.1%, missing the estimate of 0.3%.
• Eurozone Industrial Production gained 0.4%, easily beating the forecast of -0.2%. German WPI looked weak, declining 0.4%. The estimate stood at -0.2%.
• The ECB released its monthly bulletin. The central bank said that its monetary policy stance will remain accommodative for as long as necessary, and it will monitor incoming data very closely.
• German Buba President Jan Weidmann will speak in Munich.
• EUR/USD has edged lower and is trading in the low 1.33 range. The dollar got a boost from strong employment and retail sales data.
• Limited Movement as Eurozone Inflation Data Matches Estimate  – the pair is around 1.33.
• See how to trade the US consumer sentiment with EUR/USD.

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

1. French Industrial Production: Monday, 6:45. French industrial output weakened in March falling 0.9%, after a 0.8% climb in February. Economists expected a smaller decline of 0.2%. The negative reading stresses the hardships that the French economy deals with in light of reduced domestic budget and weak demand among the Euro-zone countries. The ECB said that Hollande needs to restructure France’s labor laws and the pension system to prevent further regression. An increase of 0.2% is expected this time.
2. Italian Industrial Production: Monday, 8:00. Italian industrial  production  dropped more than expected in March, down by 0.8% following a 0.9% fall in February, indicating recession is far from over for the battered Italian economy. Economists predicted a monthly decline of 0.2% in March. Analysts believe this recession will last until late this year or in early 2014. A gain of 0.1% is predicted now.
3. Sentix Investor Confidence: Monday, 7:30. Investors were less pessimistic in May according to the Sentix Investor Confidence index, the reading showed minus 15.6 from minus 17.3 in the previous month. Analysts expected a higher figure of minus 14.6. A further climb to -10 is expected.
4. French Final Non-Farm Payrolls: Wednesday, 5:30. Paris  – Non-farm workers declined by 0.3% in the final quarter of 2012 following a 0.2% decline in the third quarter. Analysts projected payrolls to decline 0.2% in the reported quarter. Employment, excluding the farming industry, declined by 44,600 jobs in the quarter ended December 2012 after falling 46,000 in the third quarter. A smaller drop of -0.1% is anticipated.
5. German Final CPI: Wednesday, 6:00. German inflation continued to weaken in April dropping 0.5% in line with market forecast, amid price fall of mineral oil products. This came after a similar decline in March. A rise of 0.4% is projected.
6. Industrial Production: Wednesday, 9:00. Industrial Output at  euro zone  factories surprised in March with a 1.0% jump, the highest climb in 20 months, following a 0.3% increase in February. The sharp rise occurred by energy related production.  However the general picture remains unclear since French and Italian production continues to fall. Meanwhile, German production edged up 1.7% in March. A decline of 0.2% is predicted this time.
7. German WPI: Thursday, 6:00.  German Wholesale Price Index declined less than expected in April, dropping 0.2% following the same fall in March. Analysts projected a stronger fall of 0.3%. On a yearly basis German WPI plunged 0.4%, compared to the 0.3% gain in the previous month.
8. ECB Monthly Bulletin: Thursday, 8:00. The ECB bulletin released in March showed that the European Central Bank lowered its growth forecast for 2013 to -0.4% from a previous projection for 0% growth. The growth forecast for 2014 was downgraded as well 1.1% to 1%. Furthermore, inflation forecast was also cut to 1.7% from 1.8%, and inflation for 2014 is now forecasted at 1.6%.
9. Inflation data: Friday, 9:00. Consumer price index edged up in April, from a year earlier, increasing by 1.2% according to forecast, following the same rise in the previous month.  The highest inflation was recorded in Romania, Estonia and Netherlands, while the lowest inflation was in Greece with a 0.4% gain. Meanwhile core CPI, which excludes food, energy, alcohol, and tobacco slowed to 1% in April, in line with expectations. A rise of 1.4% is anticipated now.

*All times are GMT

EUR/USD Technical Analysis

Euro/dollar started the week with a quick slide, but the pair bounced from 1.2940 (mentioned last week) before climbing back up, It then traded in a range between 1.3050 and 1.31, and then made a surge and peaked at 1.3306 on the big dollar crash. Eventually it closed at 1.3218.

Live EUR/USD chart:

Technical lines from top to bottom:

We start from a higher point this time. 1.3710 was the peak in early 2013 and is the ultimate peak. 1.3580 capped the pair during February and is minor resistance.

1.3480 was the “shoulders” of an old H&S pattern. 1.3434 is a line in the middle of the 1.34 to 1.3480 range.

The round line of 1.34 served in both directions when the pair traded in higher ground. 1.3350 provided support when the pair traded higher in February.

1.3306 was the peak reached in June 2013 and December 2012. It also was the bottom in February, and remains a key line.  After many failures to break higher, the euro finally pushed through.  1.3255 provided support during January 2013 and also beforehand. A recovery attempt failed to reconquer this line.

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 a now weakening.

1.3100 is a minor line after working as temporary resistance in December 2012. It is followed by 1.3050, which proved be strong support in May 2013, defending the round number in more than one occasion, and now works as support.

The very round 1.30  line  was a tough line of resistance and is becoming stronger after serving as a double top in May 2013. 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, replacing 1.2960. 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 somewhat weaker now. 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.  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.

Triangle Broken

As the thick black lines on the chart show, a narrowing channel can be seen on the chart. Downtrend resistance began in late April and was convincingly broken in June 2013.

I am neutral on EUR/USD

After Draghi put negative rates on the backburner, it’s time to reassess the pressure on the euro. The euro-zone’s issues are not going away too fast: while things aren’t that bad in Spain, Germany is not serving as an engine for all of Europe and France is certainly stuck. It’s important to remember that the ECB actually downgraded its forecasts.

In the US, the OK Non-Farm Payrolls provided a relief  after mediocre data.  In general, the slow and steady recovery continues. While tapering of bond buying will not happen very soon, it becomes clear that the Fed will reduce rather than enlarge bond buys.

All in all, the direction of the pair seems down, but with the immediate pressure on the euro removed, we could see stability after the correction.

More:  Central banks close to unleashing Tsunami of volatility in forex markets

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