EUR/USD had a positive week in general, rising as prospects continue looking better in the euro-zone in comparison to the US. The upcoming week features preliminary inflation figures and PMIs. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.
Business confidence is rising in Germany, at a faster pace than expected. In addition, manufacturing PMIs are looking good. Merkel said the euro is weak and this lifted the common currency. On the other hand, ECB President Draghi still sees inflation as subdued and this pushed back on previous gains. In the US, it was a quieter week on the political front, but the Fed took center stage with the minutes. These left the door open for a rate hike but lacked a smoking gun. And while the FOMC is warming up to squeezing the balance sheet, they are somewhat worried about growth. The growth estimate for Q1 actually beat estimates in the revision, reaching 1.2% annualized.Updates:
EUR/USD daily chart with support and resistance lines on it. Click to enlarge:
- Monetary data: Monday, 8:00. The ECB releases developments in how money is on the move. M3 Money Supply grew by a rate of 5.3% in March, reflecting an acceleration in the growth of money in circulation. A small deceleration to 5.2% is on the cards. Private loans grww by 2.4% and are predicted to accelerate to 2.4% in April.
- Mario Draghi talks: Monday, 13:00. The President of the ECB will testify in front of the European Parliament and could provide some insights about the next moves of his institution. His most latest speech was relatively dovish, especially as he mentioned subdued inflation. Draghi might be tight-lipped ahead of the ECB meeting in the following week, but he usually shakes the common currency.
- German Import Prices: Tuesday, 6:00. Prices of imported goods, especially energy, feed into inflation. Prices of external goods fell by 0.5% in March. A bounce worth 0.2% is predicted now.
- French Consumer Spending: Tuesday, 6:45. French consumers have cut back their spending in March, with a disappointing drop of 0.4%. A rise of 0.8% is predicted.
- French GDP: Tuesday, 6:45. According to the previous release for Q1 2017, the economy grew by 0.3%. While this is a slower rate than the all-European figure of 0.5%, France has seen slower growth in the past. The numbers will likely be confirmed in this reading.
- Spanish Flash CPI: Tuesday, 7:00. Spain, the euro area’s fourth-largest economy, saw deep deflation and then a rebound in price development. After hitting an annual price rise of 2.6% in April, a slowdown to 2.1% is now estimated.
- German CPI: Tuesday, with the German states publishing their data during the morning. The all-German preliminary CPI is released at 12:00. Back in April, prices remained flat month over month in Europe’s largest economy. This time, a small drop of 0.1% is predicted. The German number is substantial in shaping the all-European measure in the following day.
- German Retail Sales: Wednesday, 6:00. Consumption has been somewhat subdued in Germany back in March, with a small rise of 0.1% in retail sales volume. A quicker rise of 0.4% is now expected.
- French CPI: Wednesday, 6:45. In France, the second-largest economy, prices edged up by 0.1% in April. The preliminary release for May is forecast to show +0.2%.
- German Unemployment Change: Wednesday, 7:55. Germany’s labor market is steaming hot, with constant drops in the number of the unemployed. A fall of 15K was seen in March and now a similar slide of 14K is on the cards.
- CPI (preliminary): Wednesday, 9:00. After receiving the inflation estimates from the major countries, we get the number for all the euro-zone. Core inflation climbed to 1.2% in April, the highest level since 2013. Headline inflation, which includes volatile oil prices, rose by 1.9%, at the ECB’s target of “2% or a bit below”. A significant setback is on the cards for the month of May: 1% in core inflation and 1.5% in headline inflation, easing the pressure on Draghi to begin tapering QE. Yet if inflation remains at current levels, the euro could rise on hopes for a quicker exit from the current bond-buying scheme.
- Unemployment Rate: Wednesday, 9:00. Unemployment dropped from the highs in the old continent and hit 9.5% in March. Another small slide to 9.4% is on the cards now.
- Manufacturing PMIs: Thursday morning: 7:15 for Spain, 7:45 for Italy, 7:50 for the final French figure, 7:55 for the final German number and finally the final all-European update at 8:00. In April, Markit reported a score of 54.5 for Spain, comfortably above the 50-point threshold separating growth and contraction. A rise to 54.9 is expected. Italy had a stronger level of 56.2 in April and a tick down to 56.1 is on the cards now. According to the preliminary estimate for May, France had a manufacturing PMI of 54, Germany had 59.4 and the euro-zone had 57 points. All the numbers are expected to be confirmed in the final read.
- Spanish Unemployment Change: Friday, 7:00. Spain still has one of the highest rates of unemployment in the euro-zone. This monthly and timely report about the number unemployed provides a good gauge. A drop of 129.3K was seen in April and another big slide of 110.2K is on the cards for May.
- PPI: Friday, 9:00. Prices at factory gates, or producer prices, eventually feed into prices that consumer pay. A fall of 0.3% was seen last month and a bounce of 0.2% is predicted now.
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar continued its uptrend and hit a cycle high of 1.1266, a line that did not appear on the charts last week. It later retreated, closing marginally lower on the week.
Technical lines from top to bottom:
1.1420 was a high back in the summer of 2016. 1.1360 capped the pair in September.
1.13 is the top line seen in November before the collapse. 1.1266 is a peak seen in the month of May.
1.1160 was a low point in May, where the pair retreated to after hitting new highs. 1.1120 was a support line beforehand.
The round number of 1.10 is a key psychological level. 1.0950 is close by, and the most recent 2017 high.
The swing high of 1.0870 is the swing high in December and remains fierce resistance. 1.0820 was the post-French elections low.
1.0775 capped the pair in January and remains of importance. 1.0720 was also high in January.
The pair was unable to crack 1.0660 in February and it remains the high end of the range.
Channel left behind
EUR/USD has had three significant and rising lows in 2017: 1.0340 in the wake of the year, 1.0490 in March and 1.0565 in April. Also on the topside, we can see higher highs. In the past week, the pair made a move above the channel limits, as seen on the charts.
I remain bullish on EUR/USD
The trend remains to the upside, looking at both technicals and fundamentals. Despite the upgrade of US growth measures, euro-zone growth remains stronger. With cracks in the Fed’s determination to hike rates in June, the greenback is more vulnerable. A lot depends on the next move of the ECB, which in turn depends on inflation data released this week.
Our latest podcast is titled Poking holes in the FOMC and OPEC
Safe trading!Get the 5 most predictable currency pairs