EUR/USD attempted to run higher but eventually began a downfall and ended the week on low ground. Can this trend continue? Trade and inflation data from both France and Germany are the highlights. Here is an outlook on the highlights of this week and an updated technical analysis for EUR/USD.
While the ECB did not alter its policy, the message was dovish, with a wide open door to QE. In addition, Draghi said that they are watching EUR/USD with “much attention”. They clearly want a weaker euro. So far it is working better against the pound. Will we see a bigger slide against the dollar? In the US, Americans could celebrate the 4th of July with another blockbuster jobs report, that completes the best first 6 months since 1998. Will this push Yellen to act sooner? Probably not so fast. Let’s start:
[do action=”autoupdate” tag=”EURUSDUpdate”/]EUR/USD daily chart with support and resistance lines on it. Click to enlarge:
- German Industrial Production: Monday, 6:00. German industrial production increased 0.2% in April but came below the 0.4% gain expected by analysts. The main rise occurred in energy production. However an increase in new orders and construction as well as optimism among companies suggests an ongoing growth trend. Industrial production is expected to rise by 0.3%.
- Sentix Investor Confidence: Monday, 8:30. Eurozone investor sentiment weakened sharply in June, down to 8.5 from 12.8 posted in May. This was the second straight month of declines. Analysts projected a rise to 13. Furthermore, the 6-month expectations index dropped to 17, the lowest since August 2013, from 18.3 in the prior month. The disappointing data came by surprise after the central bank introduced a whole package of new measures to boost economic growth and inflation. Investor sentiment is expected to decline further to7.5.
- German Trade Balance: Tuesday, 6:00. German trade surplus widened in April to €17.7 billion, following €14.8 billion announced in the previous month. Analysts forecasted a smaller rise to €15.2 billion. German Exports edged up 3.0% compared to the contraction of -1.8% in March and import rose 0.1%. German trade surplus is expected to contract to 15.7 billion.
- French Gov Budget Balance: Tuesday, 6:45. France’s government deficit decreased slightly to €64.2 billion at the end of April from €66.8 billion a year earlier. Revenues increased to €93.04 billion from the previous year. Despite the improvement in France’s deficit, the European Commission warned that the government needs to make deeper cuts in health and welfare spending to reach its 2015 deficit target of 3.0% of GDP.
- French Industrial Production: Thursday, 6:45. French industrial output edged up 0.3% in April, following a 0.7% fall in March. The reading was in line with market forecast. A separate report by INSEE showed that fresh manufacturing production rose 0.3% in April, after falling by an upwardly revised 0.4% in the previous month. Analysts had forecast a 0.3% rise in manufacturing output. Industrial production is expected to advance 0.5% this time.
- ECB Monthly Bulletin: Thursday, 8:00. The European Central Bank enacted radical measures to boost growth and raise inflation rates to levels closer to 2%. The ECB has revised down its growth forecast for this year to 1.0% while upgraded next year’s projections to 1.7%. ECB staff inflation projections have been revised down to 0.7% in 2014, 1.1% in 2015 and 1.4% in 2016.
- German Final CPI: Friday, 6:00. Consumer prices were unchanged in the final report for May, posting a 0.1% monthly fall in the headline CPI reduced annual inflation from April’s 1.3% rate to just 0.9%, its weakest print since June 2010. The drop in process was related to seasonal factors with a 1.2% drop in recreation and culture charges on the back of a 5.7% reversal in package holiday costs. Consumer prices are expected to rise 0.3%.
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar started the week with a move higher and it eventually reached 1.37 (mentioned last week). But from there it was all downhill, and the pair eventually tackled the 1.3585 level.
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
Draghi indeed hit the euro with some dovishness, and used the best moment to do so: after the strong NFP. With critical support of 1.35 still below, there is room for more drops. It’s important to note that recent German numbers haven’t been amazing, and that the meeting minutes from the FOMC could be bullish, countering Yellen’s dovish message. We have seen such counter moves in the past.
All in all, there is now more room to the downside for the pair. 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.