EUR/USD had an exciting week, rising on relative European stability but eventually giving in to the dollar’s strength. Will we see it climb up from the triple bottom or tumble down? Industrial production, the EU Economic Summit and ECB Monthly Bulletin are the major events this week. Here is an outlook on the main market-movers ahead.
ECB President Mario Draghi did a fine balancing act: the ECB lowered growth forecasts and discussed a rate cut. However, Draghi seemed optimistic about the second half of the year and remained calm on the Italian situation. This outcome was better than feared. The economic situation remains problematic: services PMI showed a deeper downturn in Spain and Italy vs continued growth in Germany. Yet also the German locomotive is somewhat slower, with disappointing industrial output and factory orders. In the US, the Non-Farm Payrolls report was excellent, showing a gain of 236K jobs, and this sent EURUSD to a triple bottom. Are we fully back to the “old normal” where good US data boosts the dollar? Let’s Start
Updates: German Trade Balance posted a surplus of 15.7 billion euros, well off the estimate of 17.9 billion. French Industrial Production was a disappointment, declining by 1.2%. The estimate stood at -0.1%. German Final CPI gained 0.6%, matching the estimate. German WPI gained just 0.1%, missing the estimate of 0.4%. Eurozone Industrial Production will be released on Wednesday. The euro is improving, as has put some distance between it and the 1.30 level. EUR/USD was trading at 1.3068. French data was a disappointment this week. French Final Non-Farm Payrolls declined 0.3%, below the estimate of a 0.2% drop. French CPI gained 0.3%, missing the forecast of 0.5%. Eurozone Industrial Production looked week, dropping 0.4%. The estimate stood at -0.1%. The ECB released its monthly bulletin. The report reiterated earlier comments by ECB Mario Draghi, forecasting a recovery later in 2013, with weak inflation allowing the ECB to remain accommodative. The EU Economic Summit, a two-day meeting, began on Thursday. Eurozone Employment Change dropped 0.3%, missing the estimate of -0.1%. EUR/USD is unsteady, and was trading at 1.2950.
- German Trade Balance; Monday, 7:00. Germany’s registered the second highest trade surplus in more than 60 years on December 2012, reaching a surplus of 16.8 billion, indicating Germany is reclaiming its position as Europe’s largest economy. Despite small advances in both imports and exports there are signs of global improvement giving hope that export business will improve again. The previous reading showed a surplus of 14.6 billion. A further rise to 17.9 billion is expected.
- French Industrial Production: Monday, 7:45. France’s industrial production edged down by 0.1% in December 2012 following a strong gain of 0.5% in November. The fall was driven by falling refining activities. However, manufacturing output grew by 0.1% and construction activity that grew by 1.9%. A drop of 0.1% is forecasted.
- German Final CPI : Tuesday, 7:00. There were no changes to the flash estimate of consumer prices in the final data for January. The reading showed a monthly fall of 0.5% for an annual inflation rate of 1.7%, down from 2.1% in December. Meanwhile core inflation, excluding energy declined 0.9% lowering the annual underlying rate by some 0.6 percentage points to just 1.3%. The main reason for the sharp drop is a 5.8% plunge in clothing and footwear prices. A ruse of 0.6% is predicted now.
- German WPI: Monday. German Wholesale Price Index climbed 0.3% in January, after a flat reading in December, a bit lower than the 0.4% gain predicted by analysts. On an annual basis German WPI increased 3.0% in January, as in December and above market consensus of a 1.8% rise. A gain of 0.4% is anticipated.
- French Final Non-Farm Payrolls: Wednesday, 6:30. France Nonfarm Payrolls remained unchanged at -0.3% in the third quarter, in line with market consensus. A smaller decline of 0.2% is forecasted this time.
- French CPI: Wednesday, 7:45. France’s consumer prices declined by 0.5% in January from a month earlier amid a drop in manufacturing costs, following a 0.3% gain in the previous month. However, after four consecutive months of decline, prices of petroleum products increased by 1.3% increasing total energy costs by 1.8%. CPI is expected to gain 0.5%.
- Industrial Production: Wednesday, 10:00. Industrial output in the Eurozone edged up in December for the first time since August, rising 0.7% after a 0.7% plunge in November. The rebound indicates the single currency bloc is slowly starting to pull out of recession. Economists expected a modest growth of 0.3%. Germany, Europe’s largest economy, posted a 0.8% rise in production in the month.-0.1%
- ECB Monthly Bulletin: Thursday, 9:00. The ECB’s monthly bulletin released on February indicated inflation will drop below 2% over the next few months despite the Euro strength. The bulletin also forecasted that economic weakness will continue in the first part of 2013, but recovery should gradually begin later in the year.
- EU Economic Summit: Thu-Fri. European Union leaders will present budget-cutting plan at the March 14-15 summit in Brussels. According to the draft ”Substantial progress is being made toward structurally balanced budgets and must continue”. The leaders will also discuss the means to achieve oversight of euro-area lenders by the ECB. The EU leaders will also renew their endorsement of new budget rules that are due to take effect later this year, according to the draft.
- Inflation data: Friday, 10:00. Inflation in the euro zone declined to 2.0% in January, from 2.2% in December, in line with expectations. Meanwhile Core CPI declined to 1.3% from 1.5% in December. The subdued inflation in 2012 was caused by the low consumer spending amid the recession and the fall in energy prices. CPI is predicted to rise 1.8% while core CPI is anticipated to increase 1.3%.
*All times are GMT
EUR/USD Technical Analysis
Euro/dollar kicked off the week capped under the 1.3030 line (mentioned last week). It then moved higher only to fall to the 1.2960 line, for the second time after the previous Friday, marking a double bottom. The pair then jumped higher, eventually touching the 1.3130 line, but it then collapsed and marked a third bottom on 1.2960 before closing just above 1.30, at 1.3004.
Technical lines from top to bottom:
1.3588 worked as a clear separator of ranges during January 2013 and proved to work as resistance in February. 1.3486 was the peak seen in February 2012 and is a separator of ranges. An attempt to break higher eventually failed.
1.34 was a stubborn cap during the spring of 2012 and continued its stubborn stance in January 2013 – the line now serves as resistance. These are the head and shoulders lines. 1.3350 was a peak in January 2013 and worked very nicely as support during February. The line is weaker now.
Below, 1.3290 served as resistance before the pair collapsed in May, 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. This is the bottom of the previous range.
1.3170, which was the peak of September, served as support for the pair after the break in December and worked as strong resistance after the Italian elections. This is a key line, now on the upside. 1.3130 proved to be strong resistance during December 2012 showed its strength in March 2013 as well.
1.3100 is a minor line after working as temporary resistance in December 2012. 1.3030 provided some support at the same period of time, and also at the end of November 2012. The very round 1.30 line was a tough line of resistance for the September rally. In addition to being a round number, it also served as strong support. However, the recent battles weakened it, and now makes the next line very important.
1.2960 provided some support at the beginning of the year and also in September and October – the line is strengthening once again after working as a triple bottom. This is the key on the downside.
Lower, 1.2880 worked in both directions during 2012 and was the beginning of the uptrend support line. Lower, 1.2805 was the bottom border of the wide 1.2805-1.3170 that characterized the pair’s trading for a long time.
Below, 1.2746 worked as a separator of ranges during November, and is a minor line on the downside. This is followed by the round number of 1.27, which is minor as well. The really important line is the November trough of 1.2660.
Further below, 1.2587 is worth mentioning.
I remain bearish on EUR/USD
While it wasn’t Draghi that provided the next kick lower, the euro has two basic reasons to fall. First, the weakness of the European economies is serious. France, Spain and Italy aren’t doing too well. And while German business indicators are strong, the economy is still showing signs of weakness, as seen in factory orders and industrial output.
The second reason is the strength of the US economy: the pace of the recovery is picking up, as seen in jobs and in the services sector PMI. And that builds on changing forex dynamics: the dollar now enjoys positive US data, something that wasn’t that common in the “risk on / risk off” environment.
More technical analysis: EUR/USD Falls to Major Support Target, Continuing Bearish Reversal – by James Chen.
If you have interest in a different way of trading currencies, check out the weekly binary options setups, including EUR/USD and more. Further reading:
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