Euro/dollar broke out of range, and it was to the downside, although US weakness partially balanced the move. Is this a gradual turn downwards, or is the ongoing fear of US QE and the European debt crisis about to continue balancing the pair? Here is an outlook for the upcoming events and an updated technical analysis for EUR/USD.
The weak US Non-Farm Payrolls may be temporary, but they certainly revive the chances of QE3 – chances that dropped after the release of the FOMC Meeting Minutes. On the other side of the Atlantic, Spain’s economic siesta keeps the old continent down, together with Draghi’s rejection of working on an exit strategy.
Updates: After weakening in the Asian session, EUR/USD is steady, trading at 1.3075. Eurozone Investor Confidence plummeted to -14.7, suprising the markets, which had forecast a reading of -7.7. German Trade Balance posted a reading of 13.6B, exactly as predicted. French Industrial Production was up sharply from last month, rising 0.3%. German WPI was down a bit, posting a reading of 0.9%. This matched the market forecast. Although the Euro is holding steady, there are fresh concerns that Spain will be unable to cut its budget deficit to 3% of GDP, despite government assurances. EUR/USD has moved upwards, climbing above the 1.31 level and trading at 1.3144. French CPI rose by 0.8%, exceeding the market forecast of 0.6%. Euro-zone Industrial Production surprised the markets, posting a 0.5% increase, despite a market prediction of a 0.3% drop. This was the indicator’s best performance since October 2011. Traders and investors will be carefully eyeing US Unemployment Claims, which will be released later today.
- Sentix Investor Confidence: Monday, 8:30. 2800 analysts and investors are surveyed for this forward looking indicator. It has been moving forward in the past few months, but is still in negative ground, reflecting pessimism. Last month’s rise to -8.2 points was disappointing. A small advance to -5.4 is predicted now.
- German Trade Balance: Tuesday, 6:00. Europe’s No. 1 economy enjoys a wide trade surplus that weighs against many other countries. This surplus is likely to squeeze from 14.2 to 13.6 billion. Both figures are well within the range seen in recent months.
- French Industrial Production: Tuesday, 6:45. Europe’s second largest economy’s industry has been soft of late. Output dropped sharply two months ago (-1.4%) and failed to recover strongly last month with a mild rise of 0.3%. Another small rise of 0.2% is expected now.
- German WPI: Wednesday, 6:00. The Wholesale Price Index is becoming more important as Germany’s inflation is heating up. This second tier index has risen by 1% last month and will probably maintain a similar pace with a rise of 0.9% now.
- French CPI: Thursday, 5:30. Inflation in France is a bit more moderate and stable. A rise of 0.4% followed a decline of the same rate. Nevertheless, expectations are higher now, for a rise of 0.6%.
- ECB Monthly Bulletin: Thursday, 8:00. Around one week after the rate decision, the European Central Bank releases the statistics its members view before making a decision. This report usually has impact on the euro.
- Industrial Production: Thursday, 9:00. After Germany disappointed with a big drop in production (-1.3%), expectations are for a contraction in output for the whole euro-area. A drop of 0.2% will likely follow last month’s small rise of 0.3%.
- German Final CPI: Friday, 6:00. The initial report showed a rise of 0.3% in consumer prices. This figure will likely be confirmed now. A revision will be a big surprise.
* All times are GMT
EUR/USD Technical Analysis
Euro/$ started the new month and quarter with another failed challenge to break above the 1.3360 line (mentioned last week). The attempt to move higher turned into a downfall. A temporary stop at 1.3212 was short-lived and the drop continued, bottoming out at 1.3035. The closing tone of the week was more positive for the pair, that managed to climb back above 1.3080.
Technical lines from top to bottom:
1.3615 switched from support in October to support in November and is now resistance and remains far. 1.3550 capped the pair in November and December and marked the beginning of the plunge.
1.3486 was a distinctive double top in February 2012 and is a strong cap. It’s closely followed by minor resistance at 1.3437. The pair struggled there.
1.3360 provided some support in February 2012, when the pair was trading on high ground, and is now weak resistance. Quite close by, 1.33 was tough resistance 4-5 times, with two attempts very recently. It remains key resistance.
1.3212 held the pair from falling and switched to resistance later on. It now returns to support but isn’t that strong. This was the bottom border of tight range trading in February.1.3165 is a minor line that provided some support in December 2011 and worked as resistance in April 2012.
1.3110 is another minor line that capped the pair in January and later in April 2012. 1.3080 provided some support in March 2012 and also had a role in early 2011.
The round number of 1.30 is psychologically important and is now stronger than earlier. It managed to keep the pair from falling. The 1.2945 line is stronger once again and still provides support.
1.2873 is the previous 2011 low set in January, and it returns to support once again. This is a very strong line separating ranges. 1.2760 is a pivotal line in the middle of a recent range. It provided support early in the year.
1.2660 was a double bottom during January and the move below this line is not confirmed yet. 1.2623 is the current 2012 low, but only has a minor role now.
Here is a fresh Elliott Wave Analysis of the pair, which points to low ground.
I am neutral on EUR/USD
The reluctant FOMC regarding QE3, the deepening recession in Europe (acknowledged by the central bank) and the worsening debt crisis in Europe certainly point to lower ground for the pair. The thing that balances the picture in the shorter term is the weak gain in US jobs. While there are 5 reasons that the weak NFP might be temporary, the general feeling is that more dollar printing is still on the agenda. The dollar will find it hard to push forward while this sentiment is still strong.
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