EUR/USD managed to enjoy a nice recovery, ending the week on a positive note. Is it set for more gains? The big event of the week in Europe are the ZEW survey and inflation data. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.
Talk from the ECB on QE wasn’t news for the euro and didn’t really have a negative effect. Data-wise, we had little in the way of surprises, but the strong German trade balance reminded us that the euro is bid. In the US, we had some good JOLTs news but disappointing consumer confidence ahead of the big event: the all important Fed meeting coming now. Will the mounting tension result in an explosion of the pair?Updates:
EUR/USD daily graph with support and resistance lines on it. Click to enlarge:
- Industrial Production: Monday, 9:00. Industrial output in the euro-area disappointed with a slide of 0.4% in June. With German production falling short of predictions for July, a bounce of only +0.3% is on the cards.
- French CPI: Tuesday, 6:45. Prices in the continent’s second largest economy dropped by 0.4% in July. The publication for August feeds into the final euro-zone data published later in the week. A rise of 0.4% m/m is expected for August.
- German ZEW Economic Sentiment: Tuesday, 9:00. This early survey from ZEW has been on the fall in the past 5 months, yet the score remained positive, reflecting optimism. For the month of September, another fall from the 25 points listed in August is likely, given the global gloom: a score of 18.3 is on the cards. The all European number will likely fall as well from 47.6 seen in August to 42.1 points.
- Trade Balance: Tuesday, 9:00. Germany’s huge trade surplus shapes the figure for the full euro-zone. A positive figure of 21.9 billion was seen in June and a similar result is on the cards for July: 21.4 billion.
- Employment Change: Tuesday, 9:00. This quarterly official figure lags the unemployment rate, but is still of note. A rise of 0.1% was seen in Q1 and a repeat is predicted for Q2.
- Final inflation figures: Wednesday, 9:00. The preliminary inflation data for August showed a poor 0.2% y/y gain in prices, far below the ECB’s “2% or a bit below” target. Also when excluding volatile items, Europe has seen a meager 1% rise in prices. The data will likely be confirmed.
- ECB Economic Bulletin: Thursday, 8:00. The European Central Bank has already lowered its forecasts and President Mario Draghi dragged down the euro in a masterful act. Nevertheless, this deeper insight provides a broader view into the ECB’s state of mind.
- Current Account: Friday, 8:00. Similar to the trade balance, also the wider current account measure shows a huge surplus. A positive 25.4 billion in June beat expectations, and narrower surplus of 21.3 billion is expected now.
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar maintained the range early in the week but then surged higher, eventually closing at the highs, but still below 1.1374 (mentioned last week).
Live chart of EUR/USD:
Technical lines from top to bottom:
Due to extreme volatility, we start from higher ground this time: 1.1875 was the low seen in 2010 and also capped the pair earlier this year. The August high of 1.1712 is the next line.
1.1680 capped the pair in January on its way down. The next line is a clear separator of ranges: 1.1535. It was last seen in January as well.
The very round 1.15 level is of importance thanks to its psychological role. It is closely followed by 1.1460 that served as resistance earlier in the year.
The historic line of 1.1373 (from November 2003) still has a role as resistance. 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. It is followed by a low seen in January of 1.1113 which is nearly 0.90 on USD/EUR.
1.1050 returns to the chart after serving as a stepping stone for the pair to rise to higher ground. 1.0950 is a pivotal line in the range.
1.0865 provided some support in late May and is weak support before a stronger line: 1.0810, which was the bottom in July also nicely coincides with the low seen in May and is strong support..
The next line is 1.0760, which was the low point in both July and August 2003. 1.0715 joins the chart after temporarily capping the pair in April 2015.
I remain bearish on EUR/USD
A rate hike in the US or the alternative hawkish talk could boost the dollar across the board. For the euro, it would emphasize the monetary policy divergence that also Draghi reminded us of.
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- 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.