EUR/USD Outlook – July 19-23

After the recent rally, a busy week expects Euro/Dollar traders. Apart from many important indicators, Friday’s stress tests are critical for the Euro. Here’s an outlook for the European events and an updated technical analysis for EUR/USD, now in higher ground.

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

The Euro continued riding on the greenback’s weakness in the past week, and disregarded a credit downgrade for Portugal. Currently, German strength holds the Euro-zone. Will this continue? Let’s start:

1. Current Account: Published on Monday at 8:00 GMT.  The difference in value between money transfers, services and goods (the trade balance figure) turned negative last month – a deficit of 5.1 billion. This deficit is expected to squeeze this time to 3 billion, helping the Euro.
2. German PPI: Published on Tuesday at 6:00 GMT. Producer prices in Europe’s largest economy surprised to the upside in the past few months. But after two months above 0.5%, a modest rise of 0.3% was seen last month, and this will probably be followed by a more modest 0.2% rise this time, easing inflationary pressures.
3. Flash PMI: Published on Thursday – first in France at 7:00 GMT, then in Germany at 7:30, and finally for the whole continent at 8:00. This is a very volatile hour for the Euro, even though these indicators usually don’t make big surprises. All indicators are above 50 points, meaning economic expansions, and all of them are expected to tick down, very modestly. The all-European manufacturing PMI will probably slip from 55.6 to 55.2 and services from 55.5 to 55. Similar drops are expected in Germany and France.
4. Industrial New Orders: Published on Thursday at 9:00 GMT. This important indicator had a few positive surprises and rose very nicely in recent months. Last month was different – a modest rise of 0.6%, much less than expected. Now expectations are even lower – a drop of 0.1%. EUR/USD will rock on this release.
5. Consumer Confidence: Published on Thursday at 14:00 GMT.  This official survey of 2300 consumers is negative for a very long time. The score of minus 17 will probably be repeated once again – meaning stable pessimism. Only a big gain will help the Euro here.
6. French Consumer Spending: Published on Friday at 6:45 GMT. Europe’s second largest economy has seen volatile times – a rise of 1.6% was followed by a drop of 1.3% and then a rise of 0.7%. Economists once again expect a more steady change – a rise of 0.3%, but learning from the near past, a drop will probably be seen.
7. German Ifo Business Climate: Published on Friday at 8:00 GMT. This highly regarded survey of 7,000 businesses has been very positive in the past year, climbing steadily even when other indicators fell. It actually reflects the better state of Germany, in comparison to its fellow members in the Euro-zone. Last month saw another small rise from 101.5 to 101.8, and now it’s expected to fall back down to 101.5.
8. NBB Business Climate: Published on Friday at 13:00 GMT. Despite coming from a small country, this survey of 6,000 people is highly regarded and tends to move the Euro. The figure has been negative for many months, indicating expectations for worsening economic conditions. After getting close to 0 in April, it retreated once again and hit -7.7 last month. Another drop to 7.9 is predicted now.
9. Stress Test Results: Published on Friday. This is a critical event for the Euro. After the huge turmoil that the European debt issues caused in May, the results of these tests will rock the Euro. The methods used in these tests might be controversial, but it doesn’t matter – a positive result will boost the Euro and will create a feeling that the crisis is over, while worrying results will send it down.

Euro/Dollar continued struggling with the 1.2672 line at the beginning of the week. It later made a convincing break above this line and then continued above 1.28 (a new line that didn’t appear on last week’s outlook) and managed to cross 1.2880 before closing at 1.2927.

The pair is now bound between 1.2880, which was a support line back in May 2009 and the round number of 1.30 which it tackled in the past week.

Looking up, a significant line of resistance appears at 1.3110. EUR/USD was supported on this line before it collapsed, and found resistance at that point after the collapse.

Higher, 1.3267 was another strong line of support that turned into a resistance line now. Above, 1.3435 had the same role of a support line at the beginning of the year and serves as the next resistance line. 1.37 was a resistance line in April, and is the final resistance line for now.

Looking down, 1.28 provides immediate support, working as a resistance line in the past week. Lower, the previous resistance line of 1.2672 is a strong line of support.

Lower, 1.2520 is a minor line of support, followed by the stronger 1.2460 which held the pair before the recent rally.

The significant lines below are 1.2150, which was a clear line in both directions and 1.20.

I am neutral on EUR/USD.

The convincing break of 1.2670 and the worsening conditions in the US send the Euro up. While the situation in Europe hasn’t significantly improved, these rises cannot be ignored. The stress tests results on Friday will be very important for the debt crisis and the Euro. I think that the pair will trade in a range till then.

This pair receives excellent reviews on the web. Here are my favorites:

• Andrei continues to see a sell trend for the Euro in his technical analysis.
• James Chen marks th next lines of resistance for the rising Euro.
• Mohammed Isah sees further bullish momentum and sets a new target for the pair.
• Casey Stubbs has updated analysis for the pair.
• TheGeekKnows reviews the week and looks forward.

Further reading on Forex Crunch:

• For a broad view of all the week’s major events worldwide, read the  USD outlook.
• For EUR/USD, check out  the  Euro/Dollar Forecast.
• For GBP/USD  (cable), look into the  British Pound forecast.
• For the Australian dollar (Aussie), check out the  AUD/USD forecast.
• For the New Zealand dollar (kiwi), read the  NZD/USD forecast.
• For USD/CAD (loonie), check out the  Canadian dollar forecast.

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