EUR/USD had a positive week, taking advantage of the Fed’s dovish hike and the favorable outcome of the Dutch elections. What’s next? PMIs stand out in the upcoming week. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.
In the Netherlands, Mark Rutte’s Liberals came out on top, and with a wide margin against the extreme-right candidate Geert Wilders. This market favorable outcome was later accompanied by optimistic comments by two ECB members, Praet and Nowotny. The latter suggested a hike to the deposit rate may be underway. Another big driver of the pair to the upside came from the Fed: Yellen and co. delivered their well-telegraphed rate hike but basically left everything else unchanged. This sent the dollar down (here are the 5 dollar downers). Will the uptrend continue?Updates:
EUR/USD daily chart with support and resistance lines on it. Click to enlarge:
- German PPI: Monday, 7:00. Producer prices eventually feed into consumer prices and coming from the largest country, they have more impact. Back in January, prices increased by 0.7%, more than had been expected. A more moderate rate of 0.4% is on the cards.
- Bundesbank Monthly Report: Monday, 11:00. The central bank in the biggest country in Europe publishes its updated outlook. Growth in Germany did not lead the euro-zone in Q4, but was good enough. Is the Bundesbank worried about inflation?
- Jens Weidmann talks: Monday, 16:45. The president of the German central bank, the Bundesbank, speaks in Loerrach and his speech carries more weight this time. Will he repeat Nowotny’s words about raising the deposit rate before ending QE? He is a hawk within the ECB but in many cases, he aligns himself with the majority.
- Current Account: Wednesday, 9:00. Similar to the narrower trade balance measure, the current account is in the black mostly thanks to German exports. A wide surplus of 31 billion was seen in December. We now get the data for January. A surplus of 29.3 billion is on the cards.
- German GfK Consumer Climate: Thursday, 7:00. This 2000-strong survey disappointed with a drop back to 10 points in February, consolidating previous gains. A tick up to 10.1 is predicted.
- ECB Economic Bulletin: Thursday, 9:00. The European Central Bank follows up on its rate decisions by releasing the data that was available to the Governing Council while making its decision. Any optimism about inflation could help the euro.
- Belgian NBB Business Climate: Thursday, 14:00. While coming from a small country, the wide 6000-strong survey is watched by many. It dropped below zero, indicating worsening economic conditions in February. From -1.1 points, a rise is on the cards now, to -0.6 points.
- Consumer Confidence: Thursday, 15:00. Eurostat’s measure of consumer confidence fell back to -6 points in February, missing expectations of remaining at -5 points. The negative number reflects pessimism among the 2300 consumers surveyed across the euro-zone. The figure is projected to remain unchanged.
- Flash PMIs: Friday, during the European morning: 8:00 for France, 8:30 for Germany and 9:00 for the euro-zone. According to Markit, the French manufacturing sector saw mild growth with a score of 52.2 points in February. 52.4 is expected. A score above 50 represents expansion. The services sector was doing better with 56.4 points and carries expectations for 56.2 now. In Germany, the manufacturing sector saw solid growth with 56.8 points with 56.6 forecast now. The service industry lagged with 54.4 points and a rise to 54.5 is estimated. For the whole euro-area, manufacturing and services were quite similar, with 55.4 and 55.5 respectively. Both are expected to slip by a modest 0.1 each.
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar enjoyed an initial rise to resistance at 1.0720 (mentioned last week) before extending its gains.
Technical lines from top to bottom:
The swing high of 1.0870 is the swing high in December and remains fierce resistance. 1.0830 is the 2017 high and follows closely.
1.0775 capped the pair in January and remains of importance. 1.0720 was also a high in January.
The pair was unable to crack 1.0660 in February and it remains the high end of the range. 1.0630 is the next level, holding back the pair in February and March.
1.0520 is a relic of the past but still serves as a cap. The more recent low of 1.0490 follows very closely.
Further below, we find the multi-year low of 1.0340. Only 1.0150 separates the pair from parity at this point.
I am bullish on EUR/USD
While the Fed just hiked rates and the ECB is far from that, recent shifts have brought central banks closer. The situation in Europe is more optimistic and the Fed has returned to its favorite state: wait and see. This could push the euro higher, also via higher hopes for a market-positive outcome in the French elections.
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