EUR/USD Outlook – July 25-29

1

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.

EUR/USD daily chart with support and resistance lines on it. Click to enlarge:Euro to Dollar Chart July 25 29 2011

  1. 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.
  2. 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.
  3. 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%.
  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%.
  5. 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.
  6. 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.
  7. 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 channel

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:

Further reading:

Get the 5 most predictable currency pairs

About Author

Grega Horvat Grega is based in Slovenia and has been involved in markets since 2003. He is the owner of Ew-Forecast, but before that he was working for Capital Forex Group and TheLFB.com. His feature articles have been published on FXstreet.com, Thestreet.com, Action forex, Forex TV, Istockanalyst, ForexFactory, Fxtraders.eu, Insidefutures.com, etc. He recently won the award on FXStreet.com for Best Forex Analysis in 2016. At Ew-forecast he helps clients and educates them about the Elliott wave principle and how to label and track unfolding patterns in real time. His approach to the markets is mainly technical. He uses a lot of different methods when analyzing the markets such as candlestick patterns, MA, technical indicators etc. His specialty, however, is Elliott Wave Theory which could be very helpful especially if you know how to use it in combination with other tools/indicators. EW-Forecast To be involved in the market effectively, you need the right guidance and resources, and our team can help you to achieve that. Our team is providing advanced informations about Elliott Wave theory in real time. The Elliott Wave Principle gives you a method for identifying the behavior of the markets and at what points the market is most likely to turn. We help new traders who are interested in Elliott Wave theory to understand it correctly. We are doing our best to explain our views as simple as possible with educational goal, because knowledge itself is power!