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Greek austerity eventually boosted the euro in the past week. The Greek story stays with us, but slowly gives way to Trichet’s expected rate hike. There are many additional events this week. Here is an outlook for the events that will shake the euro, and an updated technical analysis for EUR/USD.

A rollover of bonds is suggested, and details about it are emerging. The question if CDS will be triggered still hangs, and the verdict from rating agencies is awaited. If Credit Default Swaps are triggered, the magnitude of the damage to banks is unclear. If CDS isn’t triggered, what is it good for? This is the biggest question mark related to the Greek crisis.

Looking at economic indicators, the situation in Europe isn’t too good. Even inflation is slowing down, but this is unlikely to stop the hike. In the US, we finally see some positive signs. Where will the pair go?

EUR/USD daily graph with support and resistance lines on it. Click to enlarge:EUR/USD Chart July 4 8 2011

  1. Decision on Greek aid: Weekend. The European finance ministers and the acting director of the IMF, Lipsky, will probably release the next tranche of aid to Greece. The passage of the fresh austerity measures was a prerequisite. Update: Approved.
  2. Sentix Investor Confidence: Monday, 8:30. Sentix surveys thousands of analysts and investors for this confidence survey. After a few months of high, double-digit scores, confidence sharply dropped to only 3.5 points last month. While this still is optimistic, it can easily drop to a negative number now, indicating pessimism, especially due to the Greek crisis.
  3. PPI: Monday, 9:00. Producer prices reacted relatively slowly to the drop in commodity prices, and continued rising at high paces in recent months, close to 1%. A much smaller rise is likely now.
  4. Final Services PMI: Tuesday, 8:00. According to the first release, the services sector in the euro-zone has slowed down quite a bit, falling from 56 to 54.2 points. This will probably be confirmed now.
  5. Retail Sales: Tuesday, 9:00. This gauge of consumer confidence rebounded after a few weak months. The figure is for the month of May, and will likely show another, though smaller rise, before June.
  6. Final GDP: Wednesday, 9:00. GDP came out better than expected in Q1, with many thanks to Germany and France. The final release will probably confirm the 0.8% growth rate.
  7. German Factory Orders: Wednesday, 10:00. Europe’s powerhouse saw a very nice rebound in factory orders in April, and an upwards revision of March. Another month of growth is expected now, somewhat lower than the rise of 2.8% seen last month.
  8. German Industrial Production: Thursday, 10:00. This second, complementary figure of manufacturing in Germany, has been different: it fell by 0.6%, disappointing the early expectations. A rise of a similar scale is predicted now.
  9. Rate decision: Thursday, 11:45. Jean-Claude Trichet used the code words “strong vigilance” in the last rate decision. This means that the European Central Bank is expected raise the rates now. But since that meeting in June, things have drastically changed for the worse. Will he be stubborn, raise the rates and hurt the struggling European economies? Or will he be bold enough to leave the rates unchanged at 1.25%? A hike is widely expected. The euro will move not only according to the move on the rates, but also according to the words at the press conference, scheduled for 12:30 GMT. Trichet is likely to be more dovish than last time. This isn’t only due to the debt crisis, but also due to falling inflation.
  10. German Trade Balance: Friday, 6:00. Europe’s largest country is export oriented economy. So, it enjoys a trade balance surplus. Last month it suffered a drop in the surplus to 12 billion euros. A small rise in the surplus is predicted.
  11. French Industrial Production: Friday, 6:45. Europe’s second largest country saw its industry squeeze in the past two months. After a cumulative drop of over 1%, a rise is expected now. Another fall will weigh on the euro towards the end of the week.

* All times are GMT.

EUR/USD Technical Analysis

The pair had a rough start to the week, falling down to around 1.4120. It then climbed quickly, and was capped by the 1.4550 line, discussed last week, after settling in a range cushioned by 1.4450.

Technical levels, from top to bottom:

The 2011 high of 1.4940 is not too far, and it is our first line of resistance. Below, the peak of 1.4882 which was a stubborn line at the end of May follows. 1.4775 was a support line when the pair was trading at the aforementioned high levels, and is now resistance.

1.4650 was a peak on the way up, and then switched to significant support. It will be challenged if 1.4550 is broken. 1.4550 had a pivotal role some time ago and now proved to be very tough resistance. This line is a key for further gains..

1.4450 now turns into support. It was an important line in the past, and had different roles beforehand.  1.4375 provided support a few weeks ago, and held the pair for a short period of time before the final fall two weeks ago. After being shattered now, its role is minor.

The peak of November 2010 at 1.4282 managed to temporarily hold the move upwards and eventually support the pair in the close. It has a minor role now.  1.4160 was a swing high in the past, and also a swing low a few weeks ago, before the big surge to higher levels. It remains pivotal, but is weaker than earlier.

1.4120 held the pair when it was dropping lower, and is a minor line of support. It is followed by 1.4070, which was a swing low beforehand.

Just above the round number of 1.40, we find very important support at 1.4030 – this is a very distinctive line, as seen in the graph.  Lower, 1.3950 was a pivotal line when the pair traded in lower ranges and proved that it is of high importance. The fall of the pair stopped short of reaching this line.

Another significant support line is at 1.3860, which worked in both directions earlier this 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.

Narrowing Channel

As you can see on the graph, there are three descending peaks and three ascending troughs in the daily chart. Uptrend support and downtrend resistance are getting closer, and the pair is currently getting closer to downtrend resistance. A break above this line could be a bullish sign.

I remain bearish on EUR/USD.

No, I don’t think that the Greek situation will worsen. The vote in Athens was the biggest hurdle, and the road is clear for more aid. And I don’t think Trichet will keep the rates unchanged. What I do see is a softer tone from Trichet, as the continent is slowing down, and risks mount in Spain and Italy. The upcoming hike will add to the slowdown. On the other side of the Atlantic, the end of QE2 in the US, the encouraging signs from there give some hope to the dollar.

Here are some recommended reads for the pair:

  • Gregor Horvat sees the pair still trapped in range (Elliott Wave Analysis).
  • EUR/USD is out of the list of most predictable currencies – The Greek crisis took its toll.
  • Casey Stubbs sees the pair taking a breather.
  • James Chen analyzes the pair and sees it reach the triangle upper border.
  • Kathy Lien lists the 6 hurdles that Greece needs to overcome. 3 are behind us and 3 are left.
  • TheGeekKnows reviews the week and looks forward.
  • Andriy Moraru provides weekly support and resistance lines for major pairs, including EUR/USD.

Further reading: