EUR/USD managed to tick up amid OK data from Europe and weakness in the US dollar. GDP data stands out in a busier week. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.
German factory orders beat expectations while industrial output dropped by more than had been anticipated. The European Commission’s forecasts were upgraded and optimism remains strong. Yet perhaps the drift upwards can be best explained by the most basic fundamental: the euro-zone has a significant trade balance surplus, driven by German exports. This means that when nothing happens, the single currency is bid and rises. During this week, the pair also enjoyed the greenback’s weakness amid reports about a delay in the tax reform.Updates:
EUR/USD daily chart with support and resistance lines on it. Click to enlarge:
- German WPI: Monday, 7:00. The Wholesale Price Index rose by 0.6% in September, beating expectations. Prices at the wholesale level eventually reach the consumers. An increase of 0.4% is on the cards.
- German GDP (preliminary): Tuesday, 7:00. The euro-zone has already released an early estimate of its GDP growth for Q3, but it did not include the largest economy, Germany. The so-called “locomotive” of the euro-zone has enjoyed a growth rate of 0.6% q/q in the second quarter of 2017. Q3 should be similar. Yet another quarterly growth rate of 0.6% is predicted.
- German CPI (final): Tuesday, 7:00. Prices remained unchanged month over month in October according to the initial read of inflation. This was a bit below expectations. The final read will likely confirm this number.
- Mario Draghi talks Tuesday, 10:00. The President of the ECB is hosting a conference at the Bank’s base in Frankfurt. This particular event is a panel that also consists of other heavyweights: Fed Chair Yellen, BOJ Governor Kuroda and BOE Governor Carney. Any comments about their common problem, inflation will be eyed as hints about the next moves. Draghi will make another speech there on Friday at 8:30, but the first event carries more weight.
- Italian GDP (preliminary): Tuesday, 9:00. The third-largest economy in the euro-zone grew by 0.4% in Q2 2017. This is a decent rate but fell below the euro-zone average. The number for Q3 could be better: 0.5% is forecast.
- Flash GDP: Tuesday, 10:00. The initial GDP read for Q3 showed 0.6% q/q and 2.5% y/y, a pick up in y/y growth. A confirmation of the 0.6% growth rate is currently expected. This update already includes the German number and the actual estimate may change after Germany releases its numbers.
- German ZEW Economic Sentiment: Tuesday, 10:00. The headline figure from this 300-strong figure hardly advanced in October, edging up to only 17.6 points, reflecting moderate confidence. The all-European number stood at 26.7 points. A score of 19.8 is expected in the German number and 29.3 in the European one.
- Industrial Production: Tuesday, 10:00. Industrial output increased by 1.4% in August, beating expectations. While the main countries have already published their numbers, surprises are not uncommon. A drop is on the cards now: 0.6%.
- French Final CPI: Wednesday, 7:45. The second-largest economy saw its prices rise by 0.1% m/m in October according to the initial publication. The data will probably be confirmed now.
- Trade Balance: Wednesday, 10:00. The eurozone’s trade balance surplus reflects the German surplus and keeps the euro bid. A rise to 21.6 billion was recorded in August and a similar figure is probable now: 21.4 billion.
- CPI (final): Thursday, 10:00. The first release of October’s CPI numbers showed a disappointing drop in headline inflation to 1.4% and worse off, a fall of core CPI to 0.9%. This vindicates Draghi’s dovish stance. Expectations are that these numbers will be confirmed, but revisions are not uncommon at the European level, especially with core CPI.
- Current Account: Friday, 9:00. The 19-country currency bloc had a wide surplus of 33.3 billion euros in August, reflecting a widening surplus. Similar to the narrower trade balance publication, Germany’s contribution is crucial. A surplus of 30.2 billion is predicted.
- Jens Weidmann talks. Friday, 13:00. The head of the German central bank, the Bundesbank, will give a speech in the same banking conference in Frankfurt. Weidmann is a known hawk and may support ending QE in September 2018.
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar was under pressure early in the week. It fell under the 1.1580 level mentioned last week. It then recovered nicely.
Technical lines from top to bottom:
The cycle high of 1.2090 looms above. 1.20 is the obvious round level and also worked as resistance in September.
1.1910 held the pair down back in August. 1.1830 capped the pair in August and in October while working as support in September.
1.1670 was a swing low in October. and hasn’t worked too well. The 2016 high of 1.1620 slowed down the pair also in October.
1.1555 was the low point in November and works as a cushion. It is followed by the round number of 1.15.
1.1445 is the June 2017 peak and immediate resistance. The next level of support is only 1.1370.
I am bullish on EUR/USD
The euro paid its dues, falling to lower ground. GDP data could provide a “shot in the arm” to the euro, as growth remains positive. The US dollar has already made its strides and political issues may pressure it.
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- USD/JPY forecast – analysis for dollar/yen
- AUD/USD forecast – the outlook for the Aussie dollar.
- USD/CAD forecast – Canadian dollar predictions
- Forex weekly forecast – Outlook for the major events of the week.
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