Search ForexCrunch

It took some time, but the Euro eventually made a very strong rally after the rate hike, breaking above the next levels as well. Also the upcoming week is very busy, with no less than 9 events to rock the common currency, many of them inflation related. Here’s an outlook for the European events, and an updated technical analysis for EUR/USD, now on higher ground.

Jean-Claude Trichet refused to commit on future moves, and this initially sent the Euro into a “sell the fact” mode after the hike. But together with the US political mess, a huge gain was eventually seen. Will we see some consolidation at these levels, or will the rally continue? Let’s start.

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

EUR USD Chart April 11-15

  1. French Industrial Production: Monday, 6:45. Europe’s second largest country starts the busy week of European events. After a surprising strong rise of 1%, and quite a few positive surprises beforehand, a more modest growth rate of 0.5% is expected now.
  2. Axel Weber talks: Monday 15:30. The outgoing president of the German Bundesbank is still an influential member of the ECB, and a known hawk. Speaking in Bochum, Weber is likely to support the rate hike. The big question is if he sees many more hikes soon.
  3. German Final CPI: Tuesday, 6:00. With inflation being the very closely watched by the ECB, every figure is of importance. The initial rise of 0.5% in prices will likely be confirmed now. Note that last month saw an upwards revision in this number.
  4. German ZEW Economic Sentiment: Tuesday, 9:00. This is one of the most important surveys and is very sensitive to any mood changes. German analysts and investors are optimistic in recent months, but this optimism is eroding. Last month, the 350 strong survey unexpectedly dropped from 15.7 to 14.1, and the report included concern about the implications of raising the rates. A drop to 12.2 points is expected now. Will the same concern be seen again? The less important all-European sentiment is expected to edge down from 31 to 29.8 points.
  5. German WPI: Wednesday, 6:00. The  Wholesale Price Index is definitely a second tier indicator, yet as aforementioned, it is of importance these days. In the past 4 months, prices at the wholesale level rose more than expected, showing that inflation has reached this layer as well. The pace is now predicted to ease from 1.4% to 1.3%.
  6. Industrial Production: Wednesday, 9:00. The figure for the Euro-zone is published after the French and German releases. Nevertheless, it always rocks the Euro. A modest growth rate of 0.2% was recorded last month. A significant acceleration is likely now, given the German strength, to 0.8%.
  7. ECB Monthly Bulletin: Thursday, 8:00. After the highly anticipated rate hike, Trichet wasn’t clear about the timing of the next move. The market expects another move in Q3. This monthly report will show us what the members of the ECB saw before making their decision. Concerns about inflation will boost the Euro, while concerns about the peripheral economies will weaken it.
  8. CPI: Friday, 9:00. The main driver of a stronger Euro is headline inflation. According to the flash release, consumer prices rose at an annual pace of 2.6% in March. This will probably confirmed now. The ECB’s target is 2%. Any change will rock the Euro. Core CPI is expected to be revised to the upside, from 1% to 1.1%, still very stable, and not reflecting “second round effects”.
  9. Trade Balance: Friday, 9:00. Germany’s trade surplus didn’t grow as expected, and this will likely be reflected in the trade balance for the whole Euro-zone. The deficit is expected to tick higher, from 3.3 to 3.4 billion euros.

* All times are GMT

EUR/USD Technical Analysis

After struggling between 1.4160 and 1.4282 (mentioned last week), Euro/Dollar made a first break,that was followed by a dip. The second move was already very successful, resulting in a strong rally that manged to break also 1.4450, to close at 1.4482, the highest level since January 2010.

At these highs, the first line of resistance is only at 1.4580. This was a peak 15 months ago – a peak that was followed by a deep fall. Further above, 1.47 is a rather minor line of resistance, after working as support back in October 2009.

Stronger resistance is at 1.48 – this line provided support for many days at the end of 2009, and is of high importance is we see gains.

Just above the round number of 1.5020, resistance is found at 1.5020 – this line had the same role back then. The ultimate line of resistance is the December 2009 peak of 1.5144.

Beyond this line, we’re back to the highs of the summer of 2008, when oil was even higher than now, when the Euro passed the 1.60 mark.

Looking down, 1.4450 now turns into minor support. This line provided support back in 2009, but was broken too easily now. It could offer support for a consolidating EUR/USD.

Below, 1.4282 now turns into support. This was the peak in November and recently proved to be very strong resistance. It’s closely followed by 1.4250, which was an additional layer of support.

Further below, 1.4160 served as a pivotal, mid-range line in recent weeks, and now provides support. It’s followed by the strong and distinctive 1.4030 line, which separated the different the different ranges Euro/Dollar traded in.

Further below, 1.3860 was a peak early in the year and later worked as support. It’s followed by 1.3750, which worked as support last summer and also recently – working as a stepping stone.

There are many lines below, with 1.3440 being significant, but they’re quite far now.

I am neutral on EUR/USD.

The interest rate continues to dominate and push the Euro higher, while the worsening debt crisis, as seen by the Portuguese rate hike, are currently sidelined. The reason for the final rally was the US government shutdown issue. As an agreement was reached after the markets were closed, the dollar could recover, at least at the beginning of the week. The pair is likely to see some consolidation now.

Here are additional recommended EUR/USD reads:

  • Simon Smith explains about the significance of the ECB rate hikes for forex.
  • Gregor Horvat sees EUR/USD targeting the 1.50 Psychological level.
  • James Chen sees a correction due for the pair.
  • Dean Popplewell sees the dollar in the dog house.
  • Casey Stubbs sees EUR/USD continuing higher.
  • Andriy Miraru provides weekly support and resistance lines for major pairs, including EUR/USD.
  • TheGeekKnows writes a review of the past week looks forward.

Further reading: