Euro to dollar finally got some positive news at the European Summit. The comprehensive plans for Greece sent it higher. The coming week consists of key employment and inflation figures, as well as more reactions from the credit rating agencies and the bond markets. Here is an outlook for the upcoming events, and an updated technical analysis for EUR/USD, still under downtrend resistance.
Merkel, Sarkozy and their colleagues decided on a new bailout package for Greece, including longer maturities, lower interest rates and some private sector participation, which is actually a default. In addition, the new powers of the EFSF will hopefully prevent further contagion. These are very meaningful steps, although more could be done.
- NBB Business Climate: Monday, 13:00. The core of the core of Europe, Belgium, has a relatively wide survey of 7,000 business people. After a few months of nice scores in positive ground, the indicator turned negative two months ago, hitting -1.1 point last month. This pessimism will likely continue. Actual: -2.5 points.
- German GfK Consumer Climate: Tuesday, 6:00. Moving to Europe’s powerhouse, consumers here are optimistic, and indicate further spending. The 2000 strong survey scored 5.7 last month, similar to previous months. A small slide is likely now. Actual 5.4 points.
- German CPI: Wednesday. After a few months of strong rises, originating from higher commodity prices, prices have hardly changed in the past three months. The various German states will release their CPIs during the day. No significant change in prices is expected now. This is an important release towards the next rate decision. The previous rate hike came to battle inflation. Actual: +0.4%.
- M3 Money Supply: Wednesday, 8:00. The amount of money in circulation is on the rise, according to recent data, and this justifies tightening. According to last month’s figure, the pace has accelerated to 2.4%, after 2% beforehand. A drop is likely this time. Actual +2.1%.
- German Unemployment Change: Thursday, 7:55. The locomotive of the euro-zone is still on track, but the past two months have been relatively disappointing, with drops of only 8,000 each time from the unemployment wagon. Another small drop is likely this time. A rise in the number of unemployed people will show that the slowdown in Germany is getting serious. Actual: -11K.
- French Consumer Spending: Friday, 6:45. Europe’s second largest country experienced a serious contraction in spending, for three straight months. The recent month was the worst: a drop of 1.5% in spending volume, when a rise of 1% was predicted. Expectations are for a recovery this time.
- CPI Flash Estimate: Friday, 9:00. At the time of publication, Germany’s figure has already been released. Nevertheless, this is probably the most important piece of information towards the rate decision at the beginning of August. In the past few months, the pace has been at 2.7% or 2.8%, above the 2% target. A small drop is predicted now.
* All times are GMT.
EUR/USD Technical Analysis
This was a roller coaster week, especially on Thursday. Euro/dollar fell to the 1.4030 area (mentioned last week) before staging an upwards move. The veteran 1.4282 line capped the first move, and the second rally stopped only below 1.4450.
Technical levels, from top to bottom
The top line of resistance that we start with is 1.4650. It was a peak in the past and is minor resistance. 1.4550 is already a stronger line beneath.. In case of a break above 1.4450 (and the downtrend resistance line), this line could be approached quickly.
The resistance line of 1.4450, which was an important line in the past, and had different roles beforehand is now of very high importance, after the pair bounced towards it. 1.4375 provided support after the big rally for many hours, but remains fragile.
The peak of November 2010 at 1.4282 proved to be of very high importance once again. It was a very precise line of resistance yet again . 1.42 managed to cap recent rises, and is also a round number, serving as minor support now.
1.4160 is now a pivotal line, where the euro traded around recently. Moving lower, the round number of 1.41 provides weak support.
Just above the round number of 1.40, we find very important support at 1.4030 – even though the pair dipped through this line several times. Lower, 1.3950 was a pivotal line when the pair traded in lower ranges and proved that it is of high importance. After the comeback, this line was another clear support line.
The bottom of 1.3838 will be closely watched in another fall. This was also a line of support last year. 1.3570 worked as support at the beginning of the year, and will have the same role if the Euro falls that far. The last important line is 1.3440, that is very distinctive. It was a clear border between ranges, more than once in recent years. A break below will be a very bearish sign.
Downtrend resistance became very close this week, but it wasn’t broken. A bounce lower or a break higher can occur here. Downtrend support is quite far at the moment.
I am neutral on EUR/USD.
The European debt crisis is very far from being over, but the leaders took bold steps towards a solution, and bold steps towards a stronger union. We’ll eventually see a fiscal union to support the monetary union. Critics call it a transfer union. The risks related with the growing evidence of a slowdown, the implementation of the plan, the announcements of credit events and the possible downgrades for Italy and Spain remain. But at least for now, some stability can be expected.
At the beginning of the week, the euro has a potential to rise, as the talks about raising the debt ceiling are stuck in Washington. Here are three ways this story can unfold.
I believe that a QE program for Europe will eventually come to light.
Here are recommended reads for this exciting pair:
- Simon Smith states that Wolves still circling Greece.
- Gregor Horvat sees the Greek plan as another leg down for the dollar (Elliott Wave analysis).
- Casey Stubbs sees the upwards move almost done for EUR/USD.
- Andriy Moraru provides weekly support and resistance lines for major pairs, including EUR/USD.
- 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 the Swiss Franc, see the USD/CHF forecast.
- USD/CAD (loonie), check out the Canadian dollar.