EUR/USD had a volatile week around the US elections and eventually closed lower. Speeches by Draghi, inflation, and GDP data stand. Will the euro continue lower?. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.
Donald Trump is the next president of the US. The shock decision initially pushed the dollar lower, allowing EUR/USD to break resistance, but the move seemed to lack real justification, sending the pair around 400 pips to the downside. Disappointing data from Germany played a minor role in weighing on the euro. What’s next? Update: EUR/USD crashed to the 2016 lows, but managed to recover and presents perfect range trading. The euro is not falling without a fightÑ after dipping under 1.07, it bounced back ahead of speeches by Yellen and Draghi.
[do action=”autoupdate” tag=”EURUSDUpdate”/]EUR/USD daily graph with support and resistance lines on it. Click to enlarge:
- Industrial Production: Monday, 10:00. Euro-zone industrial output advanced by 1.6% in August, but September could already see a downturn after German data showed a drop in production. A drop of 0.9% is on the cards now.
- Mario Draghi talks: Monday, 15:00. The President of the European Central Bank will speak in Rome, in his home country of Italy. This will be his first appearance after the US elections and as the countdown to the ECB’s December meeting continues. Any comments about the future of the QE program will be closely watched.
- German GDP: Tuesday, 7:00. While we already had the preliminary GDP estimate for the euro-zone as a whole, this did not take Germany into account. The largest nation in the 19-country currency zone saw a growth rate of 0.4% q/q in Q2. Slightly slower growth is expected: 0.3%.
- Italian GDP: Tuesday, 9:00. Italy is the euro area’s third-largest economy and has been suffering from sluggish growth. Growth was flat, 0%, in Q2. Economic output is expected to rise by 0.2%.
- Flash GDP: Tuesday, 10:00. According to the initial estimate, the euro-zone repeated its 0.3% growth rate also in Q3. The data will now include also data from Germany but no changes are expected: the increase of 0.3% is projected to be confirmed.
- German ZEW Economic Sentiment: Tuesday, 10:00. This early survey of German businesses beat expectations and scored 6.2 points. Another rise is expected, up to 7.9 points, reflecting more optimism.
- Trade Balance: Tuesday, 10:00. Thanks to German exports, the euro-zone enjoys a wide surplus. A small squeeze is on the cards for September: 22.3 billion after 23.3 billion in August.
- CPI (final): Thursday, 10:00. Headline inflation is ticking up thanks to the diminishing effect of the big fall in oil prices with an annual level of 0.4%. However, core inflation is still stuck at 0.8%. The preliminary numbers for October will likely be confirmed now.
- ECB Meeting Minutes: Thursday, 12:30. In the latest ECB meeting in October, the European Central Bank left all policy measures unchanged, but Draghi sounded slightly dovish. We may get more details about the intentions of the Frankfurt-based institution towards December. However, Draghi said they did not discuss extending QE, nor tapering nor anything QE-related.
- German PPI: Friday, 7:00. Producer prices have been mixed, falling last month by 0.2%. A rise of 0.3% is expected to follow now. Prices for producers eventually reach consumers.
- Draghi speaks: Friday, 8:00 Draghi’s second appearance this week could be more meaningful, as he speaks in Frankfurt, where the headquarters of the ECB are located. He may have time to reflect on the final CPI data and on the impact of Trump’s election on the prospects of the ECB’s monetary policy.
- Current Account: Friday, 9:00. Similar to the trade balance surplus, the euro-zone also enjoys a wide surplus in the wider current account measure. This is expected to grow from 29.7 billion to 31.3 billion this time.
- Jens Weidmann talks: Friday, 10:30. The President of the German central bank, the Bundesbank, speaks in Frankfurt, in the same event as Draghi. Weidmann has been critical of the ECB’s policy.
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar rode higher at first, touching 1.13. It then turned down sharply, finding some support at the 1.0850 level (mentioned last week).
Technical lines from top to bottom:
1.1335 worked as the lower bound of a higher range and then capped recovery attempts in May. 1.1230 capped the pair after the fall in May and worked as resistance.
1.1190 is the post-Brexit high seen in July. 1.1125 cushioned the pair in early September. 1.1070 served as a clear separator of ranges during February and also beforehand.
1.10 is a round number and significant resistance. 1.0960, which supported the pair in early 2016 worked as resistance in October. 1.0850, which worked as support during the same month, serves as support.
The post-Draghi low 1.0780 replaces 1.08 as support. 1.0710 is the next support line on the chart after temporarily capping the pair in April 2015.
Further below, the 2016 low of 1.0520 and the 2015 low of 1.0460 provide further support.
I remain bearish on EUR/USD
The US dollar is on a roll and the euro is one of its weakest peers. Mediocre GDP and inflation data as well as gloomy words from Draghi could push the pair even lower.
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