EUR/USD traded well within known ranges, supported by some news of growth. A busy week awaits us with an important German survey, PMIs and speeches from Draghi, Here is an outlook on the highlights of this week and an updated technical analysis for EUR/USD.
Germany managed to escape recession with a marginal growth rate of 0.1%. Is it good enough to pull the zone forward or a dent in chances of stimulus? Also France is enjoying growth of sorts. In the US, jobless claims slightly disappointed and so did JOLTs, but the latter had an important silver lining: the number of quits is back to pre-crisis levels, and this shows that people are confident to switch jobs. Confidence is also apparent in the highest consumer confidence since 2007 and in upbeat retail sales. What next? Let’s start:
[do action=”autoupdate” tag=”EURUSDUpdate”/]EUR/USD daily graph with support and resistance lines on it. Click to enlarge:
- Trade Balance: Monday, 10:00. The euro-zone enjoys a trade surplus, mostly thanks to German exports, but also Italy enjoys a surplus (and it reports its balance an hour earlier). The surplus keeps the euro bid. After a figure of +15.8 billion in August, September could see a higher number: 16.2 billion.
- Bundesbank monthly report: Monday, 11:00. The German central bank issues a monthly report in which it reflects on the economic situation in Europe’s largest economy and the euro-zone in general. It will be interesting to see if they refer to the GDP release and if the report will be used to criticize the ECB’s action, as friction between Bundesbank president Jens Weidmann and ECB president Draghi has been high of late.
- Mario Draghi talks: Monday, 14:00 and Friday at 8:00. Monday’s event is an official testimony in Brussels. As we are relatively far from the next ECB meeting, Draghi could feel more free to releases hints, especially if asked tough questions. The speech on Friday is at a banking congress in Frankfurt. Also here, the ECB chief has an opportunity to shake markets. He has a very strong influence on the common currency, as recently seen in the rate decision.
- German ZEW Economic Sentiment: Tuesday, 10:00. This important business confidence survey has been falling month after month during 2014 and in October it fell to negative territory, reflecting pessimism among analysts and institutional investors. From October’s -3.6 points, a small bounce to +0.9 points is expected the German powerhouse. The all-European number stood on 4.1, and is also predicted to tick up to 4.3.
- Current Account: Wednesday, 9:00. Similar to the trade balance figure, this wider measure of external trade is also positive, and reached a surplus of 18.9 billion in August. A weaker euro probably resulted in a wider surplus now: 21.3 billion.
- German PPI: Thursday, 7:00. Producer prices are not going anywhere fast. Germany saw no change in monthly prices in September after two months of falls. A small drop is likely now.
- Flash PMIs: Thursday: France at 8:00, Germany at 8:30 and the whole euro-zone at 9:00. France, the euro-zone’s second largest economy, is still contracting according to Markit’s recent numbers for October. The manufacturing sector PMI stood on 48.5 and services at 48.1. Scores under 50 reflect economic contraction. The preliminary numbers for November are expected to show a small improvement in these forward looking indicators: 48.9 in manufacturing and 48.6 in services. Germany enjoys growth: 51.4 in manufacturing and a strong 54.8 in services. Very similar numbers are expected now: 51.5 and 54.5 respectively For all the euro-zone, October saw marginal growth at 50.6 points while services stood on 52.4 points. Manufacturing is predicted to advance to 50.9 and services are expected to remain unchanged now. Note that the French and German reports have more influence due to their early release. Expectations for the regional numbers are modified according to the releases for the two big countries.
- Consumer Confidence: Thursday, 15:00. This official survey of around 2300 consumers has surprised by not falling even deeper into negative ground – not being more pessimistic than beforehand and staying at -11 points in September. Another month of -11 is on the cards now.
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar began the week with a continued climb, but could not really conquer the 1.25 level (mentioned last week). It then traded in range, without going anywhere fast.
Live chart of EUR/USD: [do action=”tradingviews” pair=”EURUSD” interval=”60″/]
Technical lines from top to bottom:
1.3050 serves as a minor line before the key line: 1.30, which is more than a round number. The pair bounced off this line before making the big fall.
Below 1.30, we find 1.2960 which capped the pair’s recovery attempts after it fell to lower ground. The 1.2920 level was the initial low and should be watched as well.
1.2850 worked as support in September and later capped the pair.1.2775 proved to be a stubborn top in October 2014 and is the important resistance line to the upside.
1.27 is a round number and also worked as resistance to a recovery attempt. This is followed by 1.2660 – which marks the beginning of long term uptrend support.
Below, 1.2570 is the initial low seen in October and now a line of resistance. The next line is critical: of 1.25, which is USD/EUR at 0.80. The pair flirted with this line and even dipped below it in October. This is key support.
1.2440 is only a pivotal line within the recent range, and now the round number of 1.24 has established itself as support. It is followed by 1.2360, which worked as support more than once, including in November 2014.
1.2250 served as support several times in that summer, and 1.2170 was the “shoulder” in the inverse H&S pattern around the same time. The last line is the 2012 low of 1.2040.
Downtrend resistance
As the thick black line shows, the pair is trading under downtrend resistance since mid October. This line should be watched in recovery attempts.
Here is closer look at recent movements via the hourly chart:
I turn from netral to bearish on EUR/USD
While Germany’s escape from recession allowed EUR/USD to hold up, the fundamental picture is still gloomy for the euro-zone and positive for the US and this could fuel the next leg down. Draghi could release more hints of QE and the various surveys could remind us of the vulnerability of the zone. In the US, signs of wage hikes are beginning to mount, and after the dollar took a break for consolidation, the trend could resume.
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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
- For the kiwi, see the NZDUSD forecast.