Euro/dollar finally gave in to all the bad news and fell to levels last seen in January. Will we see a new year to date low, or will trading calm down from here? We have quite a few events just before the Christmas holiday. Here is an outlook for these events and an updated technical analysis for EUR/USD.
The lack of an immediate remedy from the EU Summit was the main reason out of many why the euro fell. This came despite some positive signs from PMIs and successful bond auctions in Spain. The IFO business climate could provide good news for Germany, but the Italian worries are due to continue, especially with the GDP report.
Updates: The pair floated around 1.30 and was weighed down by the troubles in securing the IMF Loan. Then, a third successful Spanish auction pushed the pair above 1.3060. 1.3145 still caps the pair. EUR/USD rose temporarily above the important 1.3145 on hopes for the ECB LTRO, but it then “sold the fact” after all the buildup and returned to the 1.30 to 1.3060 range. EUR/USD went up on thin air, and returned back to range. Rumors of a French downgrade, once again, have weighed on the pair. This exciting pair managed to remain in the middle of the range as no news about a French downgrade arrived so far. Yields remain high.
- Current Account: Monday, 9:00. This is a lagging report, but is still of importance. According to the ECB, Europe managed to print a current account surplus in September, 0.5 billion euros. This positive surprise will likely be followed by a return to a deficit (the norm) in October, 1.9 billion.
- Mario Draghi speaks: Monday, 15:30. The president of the ECB will appear in the European parliament and might provide some more information about the ECB’s role in the crisis. In a previous appearance there, he gave some hints on the conditions under which the ECB will increase its bond buying program. He later rejected any scaling up of bond buying. His words will shake the markets.
- German PPI: Tuesday, 7:00. Producer prices have been quite stable in recent months, recording small changes. Europe’s No. 1 economy will likely show another small rise of only 0.1%.
- German GfK Consumer Climate: Tuesday, 7:00. Contrary to all the gloom and doom surrounding us, this survey of 2000 consumers has been on the rise. It surprised by rising from 5.4 to 5.6 last month, when a drop was expected. The score will likely be similar now, 5.5 points.
- German Ifo Business Climate: Tuesday, 9:00. This is one of the most important surveys and before the current problems, it was a relatively optimistic one. But with the recent wave of the crisis, it dropped as well. After stabilizing last month, it is now expected to resume its drops and tick down from 106.6 to 106.2 points.
- Italian GDP: Wednesday. Figures from the euro-zone’s third largest country usually leave the euro untouched, yet as Italy is at the heart of the current crisis, and due to fact that the release was delayed due to revisions, this publication will have a significant impact. No change is expected now.
- NBB Business Climate: Wednesday, 14:00. This wide Belgian survey of 6000 businesses turned negative in June, providing an early indicator to the negative turn of events. It continued diving into negative ground, falling short of expectations, month over month. The score of -12.2 points last month will likely be followed by an even lower figure.
- Consumer Confidence: Wednesday, 15:00. Eurostat showed that consumer confidence has stabilized, albeit at a low level of -20 points, reflecting significant pessimism. The score was stable at around -10 up to the summer. Another small drop is expected now.
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar started the week with a dive, but managed to hold on to the critical 1.3145 line (mentioned last week). It then made a sharp and clear breakout, and bottomed out only at 1.2945 before closing at 1.3045, a weekly drop of more than 300 pips.
Technical lines from top to bottom:
After the break down, we start from a lower point. A strong line is 1.3650, which served quite well in recent weeks, and was only temporarily breached. It is one of the more distinct lines in the range. Next we have a tough line: 1.3550 provided support early in September and then switched to resistance after the fall. It proved it can work as good resistance as well, as seen after the Non-Farm Payrolls.
1.3480 is of higher importance now after stopping an attempt to rise in December. It also had a role in September. The 1.3420 line is weaker now but still significant. When this bottom border of the range was broken, it immediately switched to resistance.
The level of 1.3380 is the next line. It is a minor pivotal line now once again.. 1.3280 was the bottom in December and is important support on the way down. More important support is at 1.3212 which held the pair just now.
Very important support is at 1.3145 which is the lowest point seen in the current round of the crisis. 1.3060 proved to be of importance after the fall, and it is immediate resistance now. It also provided support back in December 2010..
The round number of 1.30 is psychologically important and also worked as some support. After the breakdown, it was shattered. The new low of 1.2945 is a significant line as well. A break below this line will open the road to a new year-to-date low.
1.2873 is the YTD low set in January, and provides strong support. A break below this line will send s back to levels last seen in September 2010. 1.2734 worked as support in the summer of 2010 and is the next line below.
1.2640, is a weaker line of support, after working as such during the fall of 2010. The last line is 1.2587, the trough of August 2010.
Downtrend channel strengthens
A sharp and widening downtrend channel can be seen on the graph, and is stronger now after downtrend support provided support during the downfall. Downtrend resistance begins at the end of October and has been widened to accommodate to the changes. Downtrend support was formed later on but is more distinct – it wasn’t violated.
I turn neutral on EUR/USD
A downgrade of France or a collapse of a major French or German bank could spark another leg down. This is certainly on the cards. Nevertheless, after the big break down to 11 month lows, and the upcoming holiday season, the pair might take a break and consolidate this week. In the long run, it’s a lose lose situation for the euro.
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