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EUR/USD suffered a downfall at the end of busy week that saw the dollar surge across the board. Will the pair continue lower? German ZEW Economic Sentiment and GDP figures are the highlights of this week.  Here is an outlook on the events and an updated technical analysis for EUR/USD, now on lower ground.

German Industrial  Production hit a ten-month high, climbing 1.2% in March. This positive reading was accompanied by another pleasant surprise; German manufacturing orders continued to impress with a 2.2% jump, contrary to the -0.4% forecast. However, this was not enough to break higher. Better than expected jobless claims in the US triggered resulted in USD/JPY breaking the 100 line. This snowballed into an all-out USD surge and the euro was certainly not immune, going back to levels seen a month earlier.  

Updates: More talk about negative rates from ECB’s Visco weighed on the euro, and also the dollar rally didn’t really stop. Fresh technical analysis for the pair:  EUR/USD Stalls Decline around 200-Day Moving Average. The Eurozone finance ministers met on Monday, with the EU finance ministers are meeting on Tuesday. German numbers were a major disappointment. Final CPI declined 0.5%, matching the estimate. WPI declined as well, dropping 0.2%. This edged past the estimate of -0.3%. German ZEW Economic Sentiment, one of the most important German indicators, came in at 36.4 points, well below the estimate of 39.5 points. Eurozone numbers were better, as Industrial Production rose 1.0%, beating the forecast of 0.6%. Eurozone ZEW Economic Sentiment came in at 27.6 points. The estimate stood at 27.3 points. EUR/USD has edged lower after the weak German data, as the pair was trading at 1.2974.  Wednesday: France entered an official recession (GDP marginally worse than expected) and  Germany badly disappointed with very low growth – this sent the euro lower. Support at 1.2880 is eyed. The euro-zone as a whole contracted by 0.2% in the first quarter, making it the 3rd consecutive month of contraction. 1.2880 holds for now. French Preliminary Non-Farm Payrolls dropped 0.1%, better than the estimate of -0.3%.  Italian Trade Balance came in at 32.4 billion euros,  beating the estimate of 1.72 billion. Eurozone Trade Balance  sparkled, posting a surplus of 18.7 billion euros. The estimate stood at 11.8 billion euros. Eurozone CPI rose 1.2%, while Core CPI rose 1.0%.  Both figures matched the forecast. EUR/USD  is testing the 1.29 line. The  pair was trading at 1.2899. The euro was hit by a comment from an EC vice-president that the ECB should manage the euro lower. The single currency failed to ride on weak data from the US. EUR/USD is trading under 1.2880. Update: More talk of negative rates joined other issues and EUR/USD finally broke lower towards 1.28. Here are 4 reasons for the downfall of euro/dollar.

EUR/USD daily graph with support and resistance lines on it. Click to enlarge:EURUSD Technical Analysis for currency trading sentimental and fundamental outlooks May 13 17 2013

  1. Eurogroup Meetings: Monday. Eurogroup meetings will be held in Brussels, attended by the Eurogroup President, Finance Ministers from euro area member states, the Commissioner for economic and monetary affairs, and the President of the European Central Bank. They will discuss the Cypriot rescue package and the ways to strengthen the EU’s monetary union to prevent the recurrence of a future financial crisis.
  2. German Final CPI: Tuesday, 7:00. German monthly inflation rate was in line with predictions, rising 0.5% in March, following the same figure in the previous month. Meanwhile the annual inflation in March increased at a two- year low of 1.4%, below the 1.5% rise in February. A decline of 0.5% is expected now. Low inflaiton in Germany was certainly one of the triggers for the rate cut.
  3. German ZEW Economic Sentiment: Tuesday, 10:00. The ZEW Economic Sentiment survey revealed that the economic climate plunged in April, due to rising pessimism on future economic conditions. The reading fell 12.2 points to 36.3, while expected a milder decline to 42 points. All in all, financial market forecasts remain confident but are less optimistic than they have been in the previous month. A rise to 40.7 is estimated.  Economic predictions for the Eurozone continued to worsen in April, dropping to 24.9 from 33.4 in the preceding month, while analysts expected a smaller decline to 31.5 points. An improvement to 27.3 is expected now
  4. Industrial Production  : Tuesday, 10:00. Industrial output in the euro zone edged up more than expected in February, rising by 0.4% from a 0.6% decline in January. Economists expected the index to rise by 0.3%. The monthly indicator is volatile; however the yearly measure shows industry continues to suffer from the region’s fiscal crisis. A gain of 0.6% is predicted now. Germany’s industrial production was a positive surprise.
  5. ECOFIN Meetings: Tuesday. Economic and Financial Affairs Council (ECOFIN), composed of Finance Ministers from EU member states.   The Council meets monthly to discuss budgetary issues.   The committee will try to reach an agreed framework for the recovery and resolution of credit institutions and investment firms. This plan is part of a broader plan to establish a banking union.
  6. GDP figures: Wednesday: France begins at 5:30, Germany at 6:00, Italy at 8:00 and the euro-zone at 9:00. The Eurozone experienced its third consecutive quarter of decline at the end of 2012 amid weaker exports in Germany and France, deepening the regional recession and pushing unemployment to record highs. GDP in the Eurozone contracted by 0.6% after a 0.1% decline in the third quarter, worse than the  0.4% drop anticipated by analysts. The state of the region’s biggest economies Germany, France, Italy and Spain worsened compared to the third quarter. Germany contracted 0.6% from 0.2% expansion in the previous quarter, France’s economy shrank by 0.3% and Italian economy plunged 0.9% from 0.2% decline in the third quarter. Overall demand has weakened due to austerity measures prompting households and businesses to cut their spending. France is expected to contract by 0.1%, Germany is expected to expand by 0.3%, Italy is predicted to contract by 0.4% and the Eurozone is anticipated to contract by 0.1%.
  7. French Non-Farm Payrolls: Thursday, 7:45. French non-farm payrolls declined in the last quarter of 2012, down 0.2%, from a -0.3% drop in the preceding quarter. The reading was in line with market expectations. A decline of 0.3% is anticipated.
  8. Inflation data: Thursday, 10:00. The inflation rate declined in the Eurozone for the second consecutive month in March, reaching 1.7% from 1.8% in February. The lowest annual inflation was registered in Greece, with an inflation rate of minus 0.2%. CPI is expected to increase by 1.2% (like the initial read) and Core CPI is predicted to gain 1.0%.

*All times are GMT

EUR/USD Technical Analysis

Euro/dollar started the week with a drop to the 1.3050 linebefore making its way up and eventually challenging the 1.32 line  (mentioned  last week). From there, it was all downhill. The big fall saw the pair trade between 1.30 and 1.3050, before a second round sent it lower.

Live EUR/USD chart:

[do action=”tradingviews” pair=”EURUSD” interval=”60″/]

Technical lines from top to bottom:

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 2012, 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 critical line..

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 also working as resistance.

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 served as a pivotal line of late.  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 on the downside. The breach in May was not confirmed.

Lower,  1.2880  worked in both directions during 2012 and was the beginning of the uptrend support line. The recent breakdown turned the line into strong resistance.  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,  1.2750  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.

I remain bearish on EUR/USD

Draghi didn’t throw the  hint on negative rates  just once, but reiterated his call. This continues weighing on the euro, despite improvement in German numbers. And while the Japanese QE blitz also sends money into Europe, it sends more money to the US.

In the US, the better than expected jobless claims added a lot of optimism, in addition to the Non-Farm Payrolls. In addition, the political head-winds are now on hold, as better than expected tax revenue defers the debt ceiling issues.

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: