EUR/USD Outlook January 9-13 2012

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Euro/dollar dropped sharply as fears around banks and sovereigns intensified in the euro year. Where will it stop? The highlight of this week is the rate decision by the ECB. Here is an outlook for the upcoming events, and an updated technical analysis for EUR/USD.

Troubles in Unicredit, rumors about issues at Deutsche Bank and the anticipation for a downgrade of France all weigh on the euro, in addition to weak economic figures from all over the continent. Is Draghi ready for QE? On the other side of the Atlantic, the US continues seeing growth in jobs and a drop in unemployment. The IMF has doubts about Greece’s ability to avoid default, and a German politician talks about a need for a bigger haircut. This doesn’t bode well for the euro. The euro was trading in calm waters until Fitch said that the euro-zone is facing a “cataclysmic” collapse if the ECB doesn’t intervene. Positive comments from Merkel regarding the ESM helped. Also a downwards revision of the euro-zone GDP weakened the common currency. All eyes are now on the ECB – see a preview of the highly anticipated decision.

Updates: EUR/USD dug lower into lows at the wake of the new week on Greek worries, but managed to cheer up and rise. Is this temporary?

EUR/USD daily graph with support and resistance lines on it. Click to enlarge:EUR/USD Chart January 9 13 2012

  1. German Trade Balance: Monday, 7:00. Germany traditionally enjoys a high surplus in its balance of trade. After dropping unexpectedly from 15.1 to 12.6 billion, Germany’s trade balance is expected to remain unchanged this time, in the report for November. 
  2. Sentix Investor Confidence: Monday, 9:30. This survey of analysts and investors is in negative territory for 5 months already, diving deeper each month. The same level of pessimism is expected to remain almost unchanged, with the figure likely to tick up from -24 to -23.5 points.
  3. German Industrial Production: Monday, 11:00. The recent report about a sharp drop in factory orders lowers expectations for the country’s industrial output. After rising by a nice 0.8% last month, a drop of 0.4% is expected now.
  4. French Industrial Production: Tuesday, 7:45. The euro-zone’s second largest economy saw no change last month. A modest rise of 0.1% is expected now.
  5. Final GDP: Wednesday, 9:00. According to the first release, the euro-zone grew by 0.2% in the third quarter of 2011. The final figure will probably confirm this. The fourth quarter will likely show contraction.
  6. French CPI: Thursday, 6:30. Consumer prices probably rose for the second month in a row. December’s figure is expected to show a rise of 0.2%, a downwards revision from the first release, 0.3%.
  7. German Final CPI: Thursday, 7:00. According to the first release, prices jumped by 0.7% after a few months of almost no changes. This will likely be confirmed now.
  8. Industrial Production: Thursday, 10:00. This figure is published after Germany and France published their own. Nevertheless, the publication has a significant impact on the euro.
  9. Rate decision: Thursday, 12:45, press conference at 13:30. After two rate cuts in a row, Mario Draghi is expected to oversee his first decision not to raise the rates. At 1%, the Minimum Bid Rate is back to the low level seen after the financial crisis. Another cut is desired by some members, despite inflation standing above target, yet this will probably wait. There is some chance that the ECB will announce new measures to help the very troubled banks, adding to the 3 year unlimited and cheap loans already announced. The first operation already saw a huge €489 billion tapping, but it didn’t help the euro. Note that every word Draghi says in his press conference will be closely watched.
  10. Trade Balance: Friday, 10:00. The euro-zone, as a whole, saw two straight months of trade surpluses. This will likely continue now, with a surplus of 0.7 billion, less than last time.

* All times are GMT

EUR/USD Technical Analysis

Euro/$ started the year with a nice rise but met resistance at the 1.3060 line (mentioned last week). It was all downhill from there. After losing 1.2945, this line became resistance and the pair dipped below 1.27 to close at 1.2710.

Technical lines from top to bottom:

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 resistance.

Another line of interest is 1.3212 which held the pair from falling and switched to resistance later on. Very important resistance is at 1.3145 which wad the lowest point seen in October was only broken for a short time from the other side.

1.3085 was the top border of a very narrow range that characterized the pair towards the end of 2011. It also provided support back in December 2010 and had a pivotal role.

The round number of 1.30 is psychologically important and also worked as some support. After the breakdown, it was shattered. The relatively new low of 1.2945 is still important, and now as clear resistance.

1.2873 is the previous 2011 low set in January, and still provides resistance. 1.2734 worked as support in the summer of 2010 and is the next line below. It was broken late in the week, but already managed to serve as resistance.

1.2640, is the next line of support, after working as such during the fall of 2010. A more important line is 1.2587, the trough of August 2010. This line will be closely watched.

Even lower, 1.2520 is another minor support line, before the round number of 1.24, which was of importance a long time ago.

1.2330 is also an ancient pivotal line, that now works as support. The last important line for now is 1.2144.

Downtrend channel

A  widening downtrend channel can be seen on the graph, and is stronger now after downtrend resistance stopped a recovery attempt. 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 remain bearish on EUR/USD

After two weeks of falls and extreme short positioning, the euro may look a bit oversold. Nevertheless, all the data points lower. The ECB’s actions are a lose lose for the euro at this point. Greece is closer than ever to default, with PM Papademos talking about it, and a haircut is too far and not enough. Italy’s yields are too high and the banks are too vulnerable.

S&P admits that it’s action regarding France are irrelevant, but the looming French downgrade (two notch?) definitely weighs on the common currency as well. In the US, things are certainly better.

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Further reading:

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About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.