EUR/USD was was hit hard, breaking below low support. Is the road open to the challenge the 12 year lows? Or can we stabilize here? The focus now shifts to the GDP figures, among other events. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.
Mario Draghi kept the pressure on the common currency by repeating his intent to introduce more monetary stimulus in December. While some PMI figures were OK, German data was worrying, especially factory orders. In the US, we had our share of unimpressive data, but the Non-Farm Payrolls more than beat expectations, with 271K jobs gained and a 2.5% y/y gain in wages, certainly keeping the December rate hike option wide open. Will this divergence continue?Updates:
EUR/USD daily graph with support and resistance lines on it. Click to enlarge:
- German Trade Balance: Monday, 7:00. The euro area’s locomotive enjoys a high trade surplus, but in August it slumped below 20 billion, to 19.6 billion euros, perhaps due to the Chinese slowdown. A bounce back to 22.3 billion is on the cards.
- Sentix Investor Confidence: Monday, 9:30. This 2800 strong survey fell below expectations in the past 3 months dropping to 11.7 pointing to lower optimism. A rise to 12.4 is expected.
- French Industrial Production: Tuesday, 7:45. The continent’s second largest economy enjoyed a big jump in industrial output, 1.6% in August. Will it return to a slide this time? A rise of 0.1% is expected.
- German WPI: Wednesday, 7:00. The Wholesale Price Index serves as another measure of inflation. After a drop of 0.6%, a small rise of 0.2% is on the cards.
- Final German CPI: Thursday, 7:00. According to the initial inflation release, prices remained flat in October, 0%. This number will likely be confirmed now.
- Industrial Production: Thursday, 10:00. While the all European number is reported after the German and French, it still has an impact on markets. After a drop of 0.5% in August, a small slide of 0.1% is predicted.
- GDP data: Friday: France at 6:30, Germany at 8:00 , Italy at 9:00 and the whole euro-zone at 10:00. After a strong first quarter, the French economy remained flat in France. A nice growth rate of 0.3% is predicted now. Germany enjoyed a growth rate of 0.4% in Q2, slightly worse than expected at the time. Like France, Germany is expected to see +0.3% growth. Italy, the third largest economy, grew by 0.2% and also here, an advance of 0.3% is predicted. The whole euro-zone grew by 0.4% according to the revised data and could see similar growth now..
- French CPI: Friday, 7:45. The French inflation figure feeds into the final figures. Prices dropped by 0.4% in September and a rise of 0.1% is likely in October.
- French Non-Farm Payrolls: Friday, 7:45. The final figure for the change in French non-farm payrolls is expected to confirm the rise of 0.2% initially reported.
- Trade Balance: Friday, 10:00. Due to the drop in the German surplus, the euro-area’s surplus dropped to 19.8 billion in August and another slide to 19.4 billion is on the cards.
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar began the week in the 1.10 – 1.1070 range mentioned last week. It then slipped lower below 1.09 and finally collapsed, closing at 1.0736.
Live chart of EUR/USD:
Technical lines from top to bottom:
We start from lower ground this time. The historic line of 1.1373 (from November 2003) still has a role as resistance, but it is certainly weakening. 1.13, the round number, showed its strength in capping a recovery attempt in early September.
1.1215, which capped the pair both in June and in August is clear resistance. The post Draghi rise to 1.1130 is also a line to watch.
1.1070 is a double top in October and is the next line. 1.10 is a pivotal line in the range but not so much as support or resistance.
1.09, which was a support line in October, is the next support line. 1.0810, which was the bottom in July also nicely coincides with the low seen in May is strong support.
The next line is 1.0760, which was the low point in both July and August 2003. 1.0715 is the next support line on the chart after temporarily capping the pair in April 2015.
1.0615 served as a pivotal line within the lower range, with 1.0550 following.
Below, the 12 year low of 1.0460 is the last line in the sand before parity.
I turn from bearish to neutral on EUR/USD
While the trend remains to the downside on monetary policy divergence (clearly seen recently), we could have some stabilization after the big fall. OK GDP numbers from Europe and Fed talk could smooth things temporarily.
In our latest podcast we explain how to trade the euro printing machine:
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