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Trichet fell short of being the hero that will provide a magic solution to the European debt crisis, and the Euro is back to the falling business. The upcoming week is packed with important economic indicators as well as events related to the crisis. Here’s an outlook for these events, and an updated technical analysis for EUR/USD.

Ireland is still in the news, just before passing the stick to Portugal. After the Irish parliament approved the severe budget cuts, it is now set to approve the bailout plan.

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

eur to usd forecast December 13-17

  1. Jean-Claude Trichet talks: Monday 6:30. The president of the ECB will attend a conference in Frankfurt and will have a chance to explain the recent bond buying actions of the central bank. Trichet always moves the markets.
  2. German ZEW Economic Sentiment: Tuesday, 10:00. This important survey of 350 German analysts and investors finally improved last month, after many months of deterioration that even sent it to negative territory – meaning pessimism. After lifting its head above the water and scoring 1.8 points, it’s now expected to rise to 3.5 points. The all-European number is expected to drop from 13.8 to 10.3 points.
  3. Industrial Production: Tuesday, 10:00. The euro-zone’s industrial output drop by 0.7% last month falling short of expectations. It’s now expected to post a big correction with a rise of 1.5%.
  4. Irish Bailout: Wednesday. The Irish parliament already approved the harsh budget cuts last week – a precondition for receiving the EU / IMF bailout package worth 85 billion euros. 17.5 billion euros in this package come from Irish pensions funds. While the bailout program – a bailout of banks, is highly unpopular, the parliament is likely to approve it.
  5. Employment Change: Wednesday, 10:00. This is a late figure, coming a long time after related employment data has already been released. Nevertheless, the quarterly scope makes it important. After remaining unchanged last time, a rise of 0.2% is expected now.
  6. EU Summit: Thursday and Friday. The leaders of the European Union are meeting to discuss current affairs. An expansion of the EU / IMF package, an introduction of euro-bonds and perhaps any more new ideas that Germany opposes. Many statements will be released during the two day meetings – statements that will shake the Euro.
  7. Flash PMI: Thursday, starts in France at 8:00, continues in Germany at 8:30 and ends in the all-European figure at 9:00. All the purchasing managers’ indices are above the critical 50 point mark, meaning economic expansion, and they are all expected to remain at these levels. The all-European figures are the most important, as they also include the weaker countries. They’re both expected to be slightly above 55 points, similar to last month.
  8. CPI: Thursday, 10:00. Inflation in Europe is slowly rising, but is still well in control. The initial Flash CPI release showed consumer prices rising at an annual level of 1.9$. This will probably be confirmed now. Core CPI will probably be revised to the upside – from 1.1% to 1.2%.
  9. German Ifo Business Climate: Friday, 9:00. This wide survey of 7000 businesses has almost always exceeded expectations, rising to new highs. From 10.9.3 points last month, it’s expected to remain unchanged. It always rocks the Euro.
  10. Trade Balance: Friday, 10:00. The Euro-zone enjoys a surplus, driven mainly by the German powerhouse. This surplus is expected to rise from 2.4 to 2.9 billion this time.

EUR/USD Technical Analysis

Euro/Dollar drifted lower at the beginning of the week, but the dips below 1.32 weren’t sustainable. Most of the lines haven’t changed since last week’s outlook.

Looking up, 1.3267 provides minor and immediate support. It worked as support back in April. It’s followed by 1.3334, which was a peak earlier in the year and worked as resistance recently.

Above,  1.3440 continues to provide strong resistance. This a strong line that worked as support at the beginning of the year and also a few weeks ago. Above, 1.3575 is a minor resistance line after working as support in recent weeks.

Higher, 1.37 is stronger line, after being a peak in the spring and a double bottom a few weeks ago. It’s closely followed by 1.3785 that was a swing high before the big collapse. The next minor line is 1.3865.

Even higher, 1.3950 worked as a pivotal line when EUR/USD was trading in a higher range. Strong resistance appears just after the round number, at 1.4030. There are many more lines above, but they’re still far.

Looking down, 1.32 provides immediate support. It worked as such in the past week. . Below, 1.3114 also had the same role, several times this year.

1.2970 proved to be a strong line of support in the past week, just under the round number. It’s closely followed by 1.2920, which capped the pair in the summer.

Below, 1.2722 worked in both direction during the summer. It’s followed by 1.2587, the lowest level in 5 months – it was a bottom in August.

I turn from neutral to bearish on EUR/USD.

Trichet isn’t the hero that will help the Euro get out of the debt crisis. Together with higher yields in the US and the better of chances of a Chinese rate hike, EUR/USD is likely to suffer from risk aversive trading.

This pair receives great reviews. Here are some picks:

  • James Chen sees a stronger dollar in his strength / weakness meter.
  • Adam Kritzer sees risk aversion supporting the dollar.
  • Casey Stubbs sees a possible channel in the pair.
  • Andriy marks technical levels for the pair and sees it rather unchanged.
  • TheGeekKnows writes a review of the past week looks forward.

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