EUR/USD was trading under a lot of pressure as the crisis in Cyprus dominated the news. This story continues evolving and will impact the pair also in the upcoming week. In addition, German retail sales, unemployment are the major event this week. Here is an outlook on the main market-movers ahead and an updated technical analysis for EUR/USD.
The most recent news from Cyprus is that a big haircut will be imposed on accounts above 100K. Even if the EU still sticks to insuring accounts of under 100K, a lot of confidence has been lost. Outside the crisis, the economies aren’t doing too well: fresh PMIs were very disappointing, including a contraction in Germany’s manufacturing sector.. The euro was unable to capitalize on the ongoing QE in the US, while other currencies gained against the greenback.
Updates: As of Saturday, 7:30 GMT, the latest round of talks broke up. The president of Cyprus is on his way to Brussels to continue last minute negotiations ahead of the Eurogroup meeting. The results will impact EUR/USD: A gap higher or a gap lower. Update: 18:50 GMT: Negotiations are deep in the mud, with a delay of the Eurogroup meeting and worrying reports that the IMF is “making new demands every hour”. It seems as if Cyprus is pushed out of the euro-zone. Update early Monday: A deal was announced, but it has many uncertainties. EUR/USD is not going anywhere fast. Cyprus continues to be on edge, as their are fears of a bank run. The government has closed all banks until Thursday. GfK German Consumer Climate came in at 5.9 points, matching the forecast. German Import Prices rose to 0.3%, slightly above the forecast of 0.3%. Italian Retail Sales disappointed, declining 0.5%. This was way off the estimate of 0.4%. Italian 10-year bonds fetched an average yield of 4.66%, lower than the previous yield of 4.83%. Germany will release Retail Sales and Unemployment Change on Thursday. EUR/USD continues to slump, and was trading at 1.2764. German Retail Sales climbed 0.4%, blowing away the estimate of -0.5%. The news was not as good from Unemployment Change, which spiked to 13 thousand new claims, way off the estimate of -2K. Eurozone M3 Money Supply came in at 3.1%, just shy of the forecast of 3.2%. Eurozone Private Loans was unchanged, declining 0.9%. The estimate stood at -0.7%. Eurozone Retail PMI disappointed, dropping from 44.5 points to 43.7. EUR/USD has crossed above the 1.28 level, as the pair was trading at 1.2812.
EUR/USD daily graph with support and resistance lines on it. Click to enlarge:
- GfK German Consumer Climate: Monday. Consumer sentiment in Germany continued to improve in February, rising to 5.9 from 5.8 in January, in line with market predictions. Despite the weak international economic situation, German consumers are positive regarding the well-being of their domestic economy. It is believed that sentiment will continue to strengthen. The same reading of 5.9 is expected now.
- German Import Prices: Monday. The German Import Price Index climbed moderately by 0.1% in January, well below market expectations of a 0.5% increase. A plunge of 0.5% was registered a month earlier. A further rise of 0.2% is forecasted.
- German Retail Sales: Tuesday. German retail sales edged up 3.1% in January, the fastest monthly rate in more than six years, rebounding from a sharp contraction of 2.1% in December. Economists expected a 1.1% gain. Consumer sentiment supports economists’ forecast that the German economy will expand in the first quarter of 2013. A small rise of 0.4% is predicted this time.
- German Unemployment Change: Thursday, 8:55. The number of unemployed in Germany fell in February by 3,000, a bit below the 5,000 drop forecasted, following 14,000 decline in the previous month. Likewise unemployment rate remained steady at 6.9%, a touch above the 6.8% that marked its lowest point since the country was reunified in 1990, indicating a strong labor market. Another decline of 2,000 is expected now.
- M3 Money Supply: Thursday, 9:00. The European Central Bank (ECB) reported that M3 Money Supply climbed to 3.5% in January from 3.5% in the previous month, beating expectations for a 3.2% reading. A rise of 3.2% is forecasted.
- French Consumer Spending; Friday, 7:45. French consumer spending declined sharply by 0.8% in January from a 0.2% gain in the previous month. The drop occurred due to a slump of 11.7% in car sales. Analysts expected a mild decline of 0.1%. The weak data indicates the French economy is in a near recession mode with low consumer spending and high unemployment rate. An increase of 0.3% is anticipated now.
*All times are GMT
EUR/USD Technical Analysis
Euro/dollar began the week with a significant gap lower. Even though it breached the 1.2880 (discussed last week) line for a few hours, consequent drops didn’t succeed. The pair eventually made a late rally, unable to cross the 1.30 line, in a move that could have been a sell opportunity.
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. 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. It is becoming stronger.
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. It remains an important line. Lower, 1.2880 worked in both directions during 2012 and was the beginning of the uptrend support line. While it was temporarily breached, the line remains a key on the downside.
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 turn from neutral to bearish on EUR/USD
The crisis in Cyprus could end in Cyprus leaving the euro-zone as the ECB’s deadline looms. If we stick to the more optimistic scenario that a solution is found, money could still flood out of the country when banks open, in addition to the confidence crisis after the EU suggested cutting small accounts under 100K that were considered safe. Nothing is safe. A relief rally on a solution could be limited.
More technical analysis: EUR/USD Bearish Trend Drops to 50% of Prior Bullish Trend 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:
- 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