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After a very exciting week, the upcoming week is also packed with indicators and with expected news about the debt crisis that rocks the Euro. Here’s an outlook for the events that will rock the Euro (including special announcements) and an updated technical analysis of EUR/USD, now in higher ground.

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

eur usd forecast December 10

The two special events are the update from the ECB about the bond buying scheme and the vote on the Irish budget. The debt crisis continues to be the main driver of the Euro, and has an impact on other currencies as well. Let’s start:

  1. Sentix Investor Confidence: Monday, 9:30. This wide survey of 2800 analysts and investors exceeded estimates in the past two months, rising nicely.  Another  rise is expected now, from 14 to 16.3 points.
  2. ECB Bond Buying Update: Monday, 14:00. Jean-Claude Trichet bought lots of peripheral countries’ bonds during the press conference, lowering their yields and boosting the Euro. We’ll now know how massive it was and if it was  sterilized  or not –  unsterilized  means printing money – the same QE that Ben Bernanke does. The release will rock the Euro. Here’s more about it.
  3. Irish budget vote: Tuesday. The unpopular government in Ireland will try to pass serious budget cuts, in order to comply with the requests of the EU / IMF. This is a condition for the bailout. The coalition government has a very fragile minority, so this will be very dramatic. If the budget passes, it will help the Euro, otherwise, it will drop.
  4. Finance Ministers Summit: Tuesday. Following the recent bailout program for Ireland and the unease we’ve seen in bond markets recently, the finance ministers from of the EU are meeting in Brussels to discuss current affairs. Statements about the stability mechanism and “burden sharing” will rock the markets.
  5. German Factory Orders: Tuesday, 11:00.  Europe’s powerhouse disappointed last month with a big drop in factory orders – 4%. A significant correction is expected in this volatile indicator – a rise of 1.9%.
  6. German Trade Balance: Wednesday, 7:00. Germany enjoys a nice surplus in its trade balance. It rose to 15.6 billion last month, and it’s now expected to advance to 16.1 billion. The figure relates to October.
  7. German Industrial Production: Wednesday, 11:00. Completing the factory orders number from Tuesday, industrial output also saw a disappointing drop last month (0.8%) and is now expected to correct with a rise of 0.7%. This figure usually has a stronger impact than factory orders.
  8. ECB Monthly Bulletin: Thursday, 9:30. The European Central Bank will shed some light on the economic situation within the Euro-zone. This report will be of high interest this time, as the ECB began being a more active player in the markets.
  9. French Industrial Production: Friday, 7:45. Europe’s second largest economy saw very modest growth last month, only 0.1%. This is expected to accelerate to 0.4%, helping the Euro make a nice finish to the week.

EUR/USD Technical Analysis

The beginning of the week was bad, with Euro/Dollar falling and dipping under 1.30, to bounce off 1.2970 (a new line that didn’t appear last week). It then made a remarkable recovery, eventually closing at 1.3413.

The Euro is now capped by 1.3440 – this is 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.

Above, 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.

Above, 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, 1.3267 was a support line in April and served as resistance recently. Below, 1.3114 also had the same role, several times this year.

Lower, 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 am neutral on EUR/USD.

Trichet changed the picture with his massive bond buying and gave real hope to resolving the debt crisis. Would an earlier intervention prevent the Irish bailout? There are still significant risks coming from the character of this intervention and the critical Irish vote on the budget, so being a bull still requires caution. We’re up for lots of action – that’s certain.

Here are some great EUR/USD pieces on the web:

  • David Rodriguez discusses if this is a reversal or a correction.
  • Mohammed Isah explains the risk towards higher levels.
  • James Chen sees a bullish correction within the downtrend.
  • Andriy posts weekly technical lines and trends for EUR/USD.
  • TheGeekKnows writes a review of the past week looks forward.

Further reading on Forex Crunch:

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