EUR/USD Forecast September 2-6

EUR/USD retreated from the highs in the last week of August. Is this a preview of things to come in September? The ECB Rate decision, PMIs and German industrial data are the main vents on our calendar. Here are the major market-movers for this week and an updated technical analysis for EUR/USD, now in lower ground.

Germany released contradicting data. After an upbeat German GDP for Q2, strong PMI data in Q3, and a rise in Business sentiment came a fall in Consumer Climate and weak employment data with a rise of 7K in the number of unemployed, followed by a standstill in German inflation. Is the Eurozone’s locomotive slowing down? In the US, a positive GDP number and solid jobless claims overshadowed some weaker figures. And now, trading volume is set to rise, and so is the action. Let’s start.

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

1. Manufacturing PMIs: Monday. Euro zone manufacturing activity increased in July or the first time in two years, amid expansion in factory output. Eurozone Manufacturing PMI crossed the 50 point line to 50.3 in July from June’s 48.8, posting the first growth sign since July 2011. Spain disappointed with a small drop to 49.8 from 50.0 in June. Italy’s manufacturing sector surprised analysts with a 50.4 reading following 49.1 in June. All in all data suggests a gradual recovery process. Spanish Manufacturing sector is expected to rise to 50.1, Italy to 50.7 and the Eurozone to 51.3.
2. Spanish Unemployment Change: Tuesday, 7:00. Spanish job market continues to improve in July with a fifth consecutive drop in the number of people registered as unemployed in Spain, July’s drop of 64,900 unemployed was aided by the busy summer tourist season, boosting the job market. Spanish Government claims recession will end this year thanks to the austerity measures and reforms implemented in Spain two years ago. Another decline of 5,400 is expected in the number of unemployed.
3. PPI: Tuesday, 9:00. Friday the euro zone producer price index remained flat in June, following a 0.3% drop in the previous month. The reading missed predictions for a 0.1% rise. However a Forward guidance policy may help increase inflation. A rise of 0.2% is anticipated.
4. Services PMIs: Wednesday. The Eurozone recovery gathered pace in July rising to 49.8 from 49.6 in June, growing for the first time in 18 months. Meanwhile, the pace of job contraction was the weakest in 16 months. Spain posted a 17-month high, of 48.5 reading while Italy hit a surprising 48.7 from 45.8 in June. However growth is still lacks bounce. Spain is expected to improve to 49.3, Italy to 49.2 and the Eurozone to 51.0.
5. Retail Sales: Wednesday, 9:00. Retail sales in the euro zone dropped 0.5% in June, falling for the first time in three months, after a 1.1% surge in the previous month. Household spending does not provide the necessary boost to ignite a strong recovery. Nevertheless the ECB projects the 17-member states will improve gradually this year, driven mainly by exports and a low interest rate environment. A gain of 0.5% is anticipated, despite the disappointment from Germany.
6. German Factory Orders: Thursday, 10:00. German factory orders edged up by 3.8% the most in eight months, following a 0.5% decline in the preceding month. This sharp rise in orders, mean a substantial increase in manufacturing activity, as well as expansion in exports in the coming months leaving the economic crisis behind. A drop of 0.7% is anticipated.
7. Rate decision: Thursday, 11:45, press conference at 12:30. The ECB is unlikely to change monetary policy at this point: it would not want to be seen as influencing German elections in any way. The economic situation is better in some economies, especially in Germany, but this recovery is quite fragile. Mario Draghi tends to zig-zag between positive and negative moods in the press conferences. As the previous event was somewhat positive, Draghi could express caution now and perhaps express worries about the relatively high exchange rate of the euro.
8. German Trade Balance: Friday, 6:00. The seasonally-adjusted trade surplus widened to 15.7 billion euros in June from an upwardly revised 14.6 billion in May, a good sign for GDP growth in the second quarter. The German economy is still the major player in the Eurozone economy. Exports have helped the country avoid the recession caused by the Eurozone debt crisis. But weak demand from European partners led exports to slip sharply in May. German exports in the future success will be determined by the recovery in the US and the UK and the slowdown in emerging economies, but cannot rely on exports to boost economy. Trade surplus is expected to grow to 15.9 billion.
9. German Industrial Production: Friday, 10:00. German industrial production edged up 2.4% in June, adding proof that growth in Europe’s largest economy accelerated in the second quarter. This reading beat predictions for a 0.3% rise and was preceded by a 0.8% decline in May. Germany is benefiting from a slow recovery in the 17-nation euro region, its biggest trading partner. Factory orders soared the most in eight months in June. A decline of 0.3% is anticipated now.

*All times are GMT

EUR/USD Technical Analysis

Euro/dollar began the week capped under the 1.3415 line (mentioned last week). It then dropped and temporarily held onto the 1.33 line, before tumbling down and finding support at 1.3175 – trading by the book. The pair bounced off this line and closed at 1.3219.

Technical lines from top to bottom:

1.37 was the 2013 peak, and is still far. 1.3590 capped EUR/USD back in February and is minor resistance.

1.3520 was a swing high in February, before the pair tumbled down. 1.3450 is the new peak of August 2013 and serves as the next resistance line.

1.3415 was the peak back in June and serves as a strong line of resistance, also after the break. 1.3350 provided support when the pair traded higher in February and weakens now.

1.33 worked as support during late August 2013 and remains relevant. It is followed by 1.3240, which capped the pair in April and also had a role in August.

1.3175 capped the pair during July 2013 and works as another line of defense for any moves to the downside. It proved its strength during July and August 2013 . 1.3100 is worked as temporary resistance in December 2012 and is becoming more important once again, after capping a recovery attempt in June and then in July.

It is followed by 1.3050, which proved be strong support in May 2013, defending the round number in more than one occasion, but it is less significant now.

The very round 1.30 line was a tough line of resistance. In addition to being a round number, it also served as strong support and recently worked as a pivot line.

Uptrend support broken

Since mid July the pair trading along an uptrend support line, which it touched three times but it now moved away from this line.The dipped below this line but managed to stay very close to it. Is it a bearish sign?

I am bearish on EUR/USD

As the turbulent month of September begins, there are reasons to worry: a third bailout for Greece seems inevitable, Germany is probably unable to lead the recovery and Draghi can add to the weight on the euro.

Also the dollar has support of its own: from the growing notion that the Fed will begin tapering in September, perhaps by $15 billion. Currently a “Septaper” is a close call for the Fed and the markets. In the last days of summer, we could see some more volatility, but no clear choice of direction.

More on EUR/USD:

• Forex Analysis: EUR/USD Retreats from 1.3400 Resistance – by James Chen
• Worsening Eurozone debt levels could see September Euro sell-off – by Justin Pugsley

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Further reading: 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