Search ForexCrunch

EUR/USD  had an exciting week, rising to high ground but falling back to the drawing board. Inflation figures and final PMIs are the highlights this week.  Here is an outlook for  the highlights of this week and an updated technical analysis for EUR/USD.

The ECB does not seem to be in a rush to introduce more QE, and this gave a boost to the euro.  French manufacturing finally returned to growth territory  and also German business confidence surprised to the upside. But not all is rosy in the old continent, with uncertainty around Greece always in the background. In the US, some unimpressive figures weighed on the dollar, but Yellen surprised with a relatively hawkish speech, powering the greenback back to form.

[do action=”autoupdate” tag=”EURUSDUpdate”/]

EUR/USD daily graph  with support and resistance lines on it. Click to enlarge:

EURUSD October 2015 technical analysis euro dollar fundamental outlook sentiment

  1. Elections in Catalonia: Sunday. Spain’s northeastern region is going to the polls in a vote that is labelled by the biggest party as a vote on the path to independence. While even an absolute majority for the pro-secession parties does not imply an immediate rupture, this shakes the foundations of the euro-zone. More:  Catalonia’s elections could result in fresh risk for the euro-zone
  2. German Import Prices: Tuesday, 6:00. Prices of imported goods dropped by 0.7% in July. These prices feed into the overall CPI and eventually influence monetary policy. A drop of 1.3% is expected.
  3. Spanish Flash CPI: Tuesday, 7:00. The euro-zone’s fourth largest economy releases its inflation  numbers early and this draws attention. Spain has suffered the one of the most severe outbursts of deflation, with  y-y falls in prices exceeding 1% at times. After a flirt with 0%, prices dropped in August by 0.4% y-y. The fresh figure for September could shape expectations for the rest of the continent. A fall of 0.6% is predicted.
  4. German  Flash CPI: Tuesday, during the morning from the various states and the all German figure at 12:00. As the biggest and most influential country in the euro-zone,  the figure coming out from Germany has the strongest impact on the overall number. In August, the final read showed no change in prices month over month.
  5. German Retail Sales: Wednesday, 6:00. Sales in Europe’s largest economy have advance by 1.4% in July, meeting expectations.  Was the German consumer rattled by the the turmoil in financial markets? A small rise of 0.3% is on the cards.
  6. French Consumer Spending: Wednesday, 6:45. This is the French version of retail sales. The continent’s second largest economy releases figures for two months: July and August. They may go in different directions. In any case, rises are certainly needed after the 0.4% drop seen in June. A rise of 0.2% is expected for July and +0.4% for August.
  7. German Unemployment Change: Wednesday, 7:55. The euro area’s locomotive is enjoying a steady drop in unemployment, with only small corrections on the way down. A drop of 7K was seen in July and it is expected to be followed by a drop of 5K in August.
  8. Flash CPI: Wednesday, 9:00. The preliminary number for September will certainly be interesting to watch after the downgrade of  August’s numbers: +0.1% on the headline  number and +0.9% in core CPI.  The exact same numbers are estimated now, yet these estimations may be reshaped once the German data is out.
  9. Unemployment Rate: Wednesday, 9:00. There is some improvement in the unemployment situation, but it is very slow. The unemployment rate dropped to 10.9% in July, better than expected. The same rate is on the cards now.
  10. Manufacturing PMIs: Thursday morning: Spain at 7:15, Italy at 7:45, final French number at 7:50, final German number at 7:55 and final euro-zone figure at 8:00. In August, the  manufacturing sector continued growing in Spain according to Markit: 53.2 points, above the 50 point threshold separating growth and contraction. A score of 53 is predicted now. Italy, the third largest economy, has seen a similar figure of 53.8 points. A small drop to 53.4 is expected. According to the preliminary release for France, the country’s  manufacturing sector  finally returned to growth, with a score of 50.4 points. Germany saw a better figure of 52.5, but it was actually a drop from September. The euro-zone figure initially came out at 52. All the last three number are expected to be confirmed now.
  11. Spanish Unemployment Change: Friday, 7:00. Spain is not only suffering from deflation but also from high unemployment. The monthly change in the number of unemployed is very seasonal, but still has an impact. A gain of 21K was seen August, despite the peak tourist season. Another advance is on the cards now: 17.9K.
  12. PPI: Friday, 9:00. Producer prices have dropped 0.1% in the past two months. For August, a bigger drop is on the cards. These prices eventually feed into consumer prices. A drop of 0.5% is on the cards.

* All times are GMT

EUR/USD Technical Analysis

Euro/dollar  started the week with more downside pressure but eventually tackled resistance at 1.13 (mentioned last week) that held strong. From there it lost a lot of ground.

Live chart of EUR/USD: [do action=”tradingviews” pair=”EURUSD” interval=”60″/]

Technical lines from top to bottom:

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

Monetary policy divergence remains the name of the game.  When both central banks  sound more hawkish than expected,  this means ongoing euro printing from the ECB and a rate hike in 2015 from the Fed, and this supports a drop. In this regard, inflation figures in the euro-area could serve as a reminder that stimulus is needed.

In our latest podcast we explain why the dollar defies the doves

Follow us on  Sticher.

If you are interested in a different way of trading currencies, check out the  weekly binary options setups, including EUR/USD and more.

Further reading: