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The common currency continued higher, and tested new ground, ignoring the debt crisis. The upcoming week is very busy, and consists of major inflation and employment figures. Here’s an outlook for these events, and an updated technical analysis for EUR/USD.

The credit downgrade warning by S&P hurt the US dollar. At first, this wasn’t felt with EUR/USD, but it eventually drove the pair higher. At the time of writing, there’s no confirmation that Greece will restructure its debt during the weekend. A Greek default can have a devastating effect on the markets. Let’s start:

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

EUR USD Chart April 25-29

  1. German CPI: Wednesday. Europe’s largest economy has seen consumer prices rise in the past two months by 0.5%, pushing for the European rate hike. This time, the pace is expected to weaken to 0.2%. Note that the components of this indicator are released separately by the various German states. The big picture will emerge towards the end of the day.
  2. GfK German Consumer Climate: Wednesday, 6:00. This important consumer survey has risen nicely in the past few months, reflecting improving confidence. The previous month saw a small slide from 6 to 5.9 points. The survey of 2000 consumers is expected to tick back up this time.
  3. Industrial New Orders: Wednesday, 9:00. The volume of orders in the manufacturing sector has enjoyed very nice growth in recent months. Even last month’s weak rise of 0.1% was later revised to a strong growth rate of 1.2%. An even stronger rise is predicted this time – 1.7%. This figure is likely to give a boost to the Euro.
  4. German Import Prices: Thursday, 6:00. While this is usually a second tier figure, the rising importance of inflation in rocking the Euro, makes this release important as well. A rise of 1% is likely now, lower than 1.1% reported last month.
  5. French Consumer Spending: Thursday, 6:45. Europe’s second largest economy has seen significant fluctuations in its consumers’ moods. After a drop of 0.3% two months ago, a strong rise of 0.9% was seen last month. A gain of 0.3% in overall consumption is likely now.
  6. German Unemployment Change: Thursday, 7:55. Last month, Germany returned to its astounding improvement in the labor market, with a huge drop of 55K in the number of unemployed people, far better than expected. A big drop of 40K is predicted now. This will boost the Euro.
  7. German Retail Sales: Friday, 6:00. German consumers’ spending habits vary from month to month. After a drop of 0.4% last month, a rise of 0.1% is expected now.
  8. M3 Money Supply: Friday, 8:00. This macroeconomic indicator has been on the rise, supporting the case for a rate hike. The amount of money in circulation rose by 2% last month, and is expected to accelerate to 2.2% this time.
  9. CPI Flash Estimate: Friday, 9:00. Perhaps this is the most important indicator of the week – the headline inflation. Although being only the preliminary number, it has a significant impact on the Euro and on the policymakers at the ECB. After jumping to an annual rate of 2.7% last month, it’s now expected to remain stable at this level. A rise above 3% will put pressure for a rate hike in May. A drop below 2.5% will push it back.
  10. Unemployment Rate: Friday, 9:00. This is the painful spot of Europe – despite dropping unemployment in Germany and low unemployment in a handful of rich countries, the overall picture is gloomy. Although the unemployment rate fell below 10% last month, it didn’t get too far, 9.9%. With Spain’s unemployment rate above 20%, the overall picture isn’t expected to change.

* All times are GMT

EUR/USD Technical Analysis

The common currency began the week with a huge plunge, finding support only at the 1.4160 line (mentioned last week). The recovery was gradual but persistent, with the pair reaching a new peak 1.4650, before losing some ground and closing lower.

Looking up, very minor resistance appears at 1.4580, which was a peak back in January 2010 and worked as resistance towards the end of the week. It’s followed by another minor line, 1.4650, which was the peak in the past week.

1.47 is already a tougher line, following its role as support in October of 2009. Even stronger resistance is at    1.48 – this line provided support for many days at the end of 2009, and is of high importance if the pair reaches these levels.

Moving higher, we find resistance just above the round number of 1.50,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, initial support is at 1.4520, which switched its role from support just now. It’s a minor line of support. Stronger support is found at  1.4375  after working as such several times two weeks ago.

Moving lower, the pair will meet the previous one year high of 1.4282, that was a very tough resistance line, and now switches to support. Together with 1.4250, they form a region of support.

1.4160 proved to be the last frontier in the early collapse. It previously served as a was pivotal when the pair traded in the previous lower range.

An important cushion is at the 1.4030 line, which separated the different the different ranges Euro/Dollar traded in.  Further below, 1.3860, which was a peak early in the year and later worked as support is the next level.

The last line for now is 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 debt crisis is about to explode with the Greek default, and this is likely to weigh on the Euro at the beginning of the week, and also in the long run. On the other hand, the US rate decision has high chances of sending the greenback to a free-fall from Wednesday evening, if we don’t hear a decisive end to QE2. This will definitely be an exciting week.

Here are some more recommended reads about Euro/Dollar:

  • Michael Derks analyzes the risk appetite that is crushing the US dollar.
  • FX Tech Strategy sees vulnerability after the break below the downtrend channel.
  • Casey Stubbs sees another upwards move building up in the Euro.
  • Adam Kritzer says it’s time to short the Euro.
  • TheGeekKnows writes a review of the past week looks forward.
  • Andriy Miraru provides weekly support and resistance lines for major pairs, including EUR/USD.

Further reading on Forex Crunch: