After quite an exciting week, a very eventful week expects traders – inflation, employment and the rate decision are the highlights. Here’s an outlook for the European events and an updated technical analysis for EUR/USD.
The escalation in the Egyptian crisis sent EUR/USD tumbling down towards the end of the week. The situation is still chaotic and tense, indicating that the Egyptian effect is likely to continue, at least at the beginning of the week.
EUR/USD chart with support and resistance lines on it. Click to enlarge:
- German Retail Sales: Monday, 7:00. Europe’s largest ecoomy disappointed last month with a sharp drop in sales. A rise of the same scale is expected now.
- CPI Flash Estimate: Monday, 10:00. Inflation in the Euro-zone crossed the 2% last month and climbed to an annual rate of 2.2%. Jean-Claude Trichet vowed to fight inflation, and this gave a boost to the Euro. The fresh figure is expected to climb further and reach 2.4%.
- German Unemployment Change: Tuesday, 8:55. During most of the past year, drops were seen in the number of unemployed people, showing the German strength. Last month was disappointing, as a rise was recorded, of 300 people. A fresh drop of 11,000 is expected now.
- Final Manufacturing PMI: Tuesday, 9:00. Europe’s manufacturing sector is climbing at a satisfactory rate, according to the first release. The score of 56.9 will probably be confirmed now.
- Unemployment Rate: Tuesday, 10:00. This figure is rather painful – the unemployment rate stubbornly remains above 10%. The 10.1% number isn’t expected to change now, weighing on the Euro. Spain’s unemployment rate reached 20.3% in Q4 2010.
- Jean-Claude Trichet talks: Tuesday, 19:00. The president of the ECB surprised the markets with his determination to fight inflation on the first signs of lifting its head. In a speech in Milan, Trichet will have a chance to rock the Euro.
- PPI: Wednesday, 10:00. Despite being released after the CPI number, also producer prices are of interest as the focus moves to inflation. After a few months of small rise, PPI is expected to rise by 0.8%, the highest sine June.
- Final Services PMI: Thursday, 9:00. While purchasing managers in the services sector show less growth, the situation is OK also here. The score of 55.2 is likely to be confirmed now.
- Retail Sales: Thursday, 10:00. The all-European figure tends to surprise, even though it’s released after the German and French figures. The fall of 0.6% last month will probably by followed by a rise of 0.6% this time.
- Rate decision: Thursday, 12:45. Will Jean-Claude Trichet up his talk against inflation? A rate hike isn’t expected now, but the ECB might mark a timing for raising the rates as prices are picking up. This depends a lot on the CPI Flash Estimate released earlier in the week.
* All times are GMT.
EUR/USD Technical Analysis
Euro/Dollar made a gradual rise throughout the week and was struggling with the 1.37 line (mentioned last week). The troubles in Egypt eventually sent it down to close at 1.3609, hardly unchanged from last week.
Looking up, immediate resistance is found at 1.37. This was a stubborn support line during October, and now switched to resistance.. Above, 1.3786, which was a peak in November, is a minor line now.
Higher, 1.3786 is also minor support, after serving as support when the Euro was trading higher. 1.3950 is already a more important line, after serving as a pivotal line.
Above, 1.4030, just over the round number of 1.40, served in both directions during September and October, and also beforehand. It’s a tough line.
Above, the peak of 1.4160 is another minor line before 1.4280 that is the highest level in a year.
Looking down, 1.3573 provides stronger support after stopping the fall in the past week. It served as such back in November and was broken rather easily now.
The next line remains important – 1.3440, which was a very stubborn peak in the past three months now returns to be a line of resistance.
Lower, 1.3334, which was a peak during the summer, is a minor cushion below. 1.3267 is the next minor line after holding the pair several times in the past.
More important support is found at 1.3180, which provided support during December. It’s followed by 1.3080, that prevented a full during the same period of time.
Below, 1.2970 was the bottom reached in November and is the next line. The last line for now is 1.2870, which is th lowest level in 5 month, reached only two weeks ago, before the impressive recovery. There are more lines further below, but they’re too far now.
I turn bearish on EUR/USD.
The ongoing civil unrest in Egypt, higher yields on peripheral bonds and the oversold conditions of the dollar all weigh against the Euro in the upcoming. European inflation can cushion a fall.
Here are some recommended reads about EUR/USD:
- Gregor Horvat used Elliott Wave analysis to see the reversal, that eventually came. He marks the next levels.
- Mohammed Isah sees hesitation on an attempt to reach higher ground.
- Andriy Miraru marks technical levels for the upcoming week.
- TheGeekKnows writes a review of the past week looks forward.
- Casey Stubbs asks when the trend in the Euro will turn.
Further reading on Forex Crunch:
- For a broad view of all the week’s major events worldwide, read the USD outlook.
- For the Japanese yen, read the USD/JPY forecast.
- For GBP/USD (cable), look into the British Pound forecast.
- For the Australian dollar (Aussie), check out the AUD to USD forecast.
- For the New Zealand dollar (kiwi), read the NZD forecast.
- For USD/CAD (loonie), check out the Canadian dollar.