EUR/USD Outlook March 26-30

10

Euro/dollar climbed within the range, despite the reawakening of the debt crisis in the larger euro-zone countries. The week ahead provides important surveys as well as inflation figures, which became more important since the last rate decision. Here is an outlook for the upcoming events and an updated technical analysis for EUR/USD.

Worries about Spain were heard left, right and center and yields rose once again. The chances of another bailout for Portugal or a restructuring are higher on the agenda. Also the growing signs of a deeper recession don’t shine on the euro. In the US, a wide variety of speakers provided a wide array of views. For some, QE3 is still on the agenda, and this weighed on the dollar. How will the pair end the first quarter?

Updates: German Ifo Business Climate came in at 109.8, as predicted by the markets. This marked the fifth consecutive month that the indicator has risen. German Consumer Climate was down, dropping slightly t0 5.9. German Consumer Climate disappointed, dropping to 5.9. German Import Prices fared no better, falling to 1%. EUR/USD edged up following Bernanke’s speech on the U.S labor market in which he left open the possibility of another quantitative easing plan. M3 Money Supply rose 2.8%, a five-month high. Private Loans fell to 0.7%, the lowest figure since July 2010. German Unemployment Change showed strong improvement, dropping by 18K. The markets had predicted no change in the indicator. EUR/USD is down, trading at 1.3271.

EUR/USD daily graph with support and resistance lines on it. Click to enlarge:EUR/USD Chart March 26 30 2012

  1. German Import Prices: Publication time unknown at the moment. In the latest rate decision, ECB president Mario Draghi put some fresh emphasis on inflation. So, also this second tier figure becomes more important. After a surprising and strong rise of 1.3%, a modest move is expected now.
  2. German Ifo Business Climate: Monday, 8:00. Germany’s No. 1 Think Tank surveys around 7000 businesses for its highly regarded indicator. A fifth rise in a row is expected now, from last month’s 109.6 points. Also the less-optimistic ZEW survey rose nicely. Note that the accompanying statement from the head of IFO also impacts the market.
  3. GfK German Consumer Climate: Tuesday, 6:00. German consumers are gradually becoming more confident. The score ticked up in recent months, reaching 6.0 points. Another small rise, in line with previous rises, is likely now.
  4. German CPI:Wednesday. Germany’s states release the figures during the day. After a  drop of 0.4% two months ago, a strong comeback was seen in consumer prices last month, 0.7%. A similar rise once again will be problematic for the ECB, as it will be called to fight rising inflation at a time of recession.
  5. M3 Money Supply: Wednesday, 8:00. Also in this inflation related figure, we saw a big comeback, with an annual pace of 2.5% recorded last month, much higher than the previous 1.5% pace. The ECB can claim that one of the reasons is the LTRO, which prevented a credit squeeze. Another acceleration in the pace will add to hawkish pressure.
  6. German Unemployment Change: Thursday, 7:55. No change was seen in the number of unemployed people last month, yet the general picture is very good. Europe’s No. 1 economy usually sees drops in unemployment, and a small drop is expected now as well.
  7. French Consumer Spending: Friday, 6:45. The euro-zone’s second largest economy disappointed with two consecutive drops in consumer spending. After the 0.4% drop seen last month, a small rise is likely now.
  8. CPI Flash Estimate: Friday, 9:00. For the euro-zone as a whole, inflation remains above the 2% target, at 2.7%. This isn’t likely to change now. The main driver of higher prices is oil. Core inflation is under 2%. This publication is important towards the rate decision in the following week.

* All times are GMT

EUR/USD Technical Analysis

Euro/$ started the week with a jump, and from there it saw range trading throughout the week: between 1.3135 and almost 1.33, finally closing at 1.3268.

Technical lines from top to bottom:

Note that some lines have been modified since last week. 1.3615 switched from support in October to support in November and is now resistance and remains far. 1.3550 capped the pair in November and December and marked the beginning of the plunge.

1.3486 was a distinctive double top in February 2012 and is a strong cap. It’s closely followed by minor resistance at 1.3437. The pair struggled there.

1.3360 provided some support in February 2012, when the pair was trading on high ground, and is now weak resistance.  Quite close by, 1.33 was tough resistance 4-5 times, with two attempts very recently. It remains key resistance.

1.3212 held the pair from falling and switched to resistance later on. It now returns to support but isn’t that strong. This was the bottom border of tight range trading in February. 1.3135 provided support for the pair in late March 2012 and is now key support for the recent range trading.

1.3080 provided some support in March 2012 and also had a role in early 2011. The round number of 1.30 is psychologically important and is now stronger than earlier. It managed to keep the pair from falling.

The 1.2945 line is stronger once again and still provides support. 1.2873 is the previous 2011 low set in January, and it returns to support once again. This is a very strong line separating ranges.

1.2760 is a pivotal line in the middle of a recent range. It provided support early in the year. 1.2660 was a double bottom during January and the move below this line is not confirmed yet. 1.2623 is the current 2012 low, but only has a minor role now.

The reaction in markets to the strong jobs report resembles a similar move in December 2009, and could point to an avalanche in EUR/USD. See the charts here.

I turn bearish on EUR/USD

With less euro shorts to squeeze, growing fears about Spain, a delay in Greece’s foreign law PSI, the threat of the IMF to cut off Greek aid if more cuts aren’t made soon, and the inability of the pair to rally, it can now turn south, and confirm the head and shoulders pattern.

In the US, housing remains depressed, but employment continues improving. Bernanke can always spoil things for the dollar, but the general direction is dollar-positive in the long term.

If you have interest in a different way of trading currencies, check out the weekly binary options setups, including EUR/USD, GBP/JPY and more.

Further reading:

Get the 5 most predictable currency pairs

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 the 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.

10 Comments

  1. You say “…The chances of another bailout for Portugal or a restructuring are higher on the agenda..” This is what the guy from PIMCO has been preaching around recently because he is afraid of loosing money on the bets he has made. You better believe me. If you go that way you will sure loose money because there will be no 2nd bailout for Portugal and no restructuring at all. Portuguese debt is sustainable as so many studies have found out. Also the deficit control is going well as well as the adjustment program. Everything seems to be on track.

    Next week we can have a confirmation or not of the H&S. But i can see also an inverted H&S on formation which could mean a bullish EUR. Let’s see. Last week i was bullish on EURUSD and i proved to be right. Yohay was wrong. This week I’m neutral on EURUSD. Let’s see…

      • I recall at least 2. One from ECB and the other from IMF. The ECB study points to a scenario where a recession is of 5% (cant remember the time frame). Of course there are risks and the biggest is growth and external economic environment. Both studies points to the fact that Portugal have institutions that do work and the fiscal system does it’s job. Also there is a wide consencus in the poipulation and the political environment is stable. The 3 major parties ( 2 in governemnt and 1 in oposition have a written support of the adjustment program. The guy from PIMCO have his won agenda and that is why recently he has been using the media to preach about 2nd bailout, debt restructuring, etc.

  2. I am also neutral. The dollar resumed its long-term weakening trend on March 15 and this will continue. I see no reason for the euro to strengthen but as the dollar is to weaken (or to remain where it is now) it is not very smart to get into eurusd short. Especially not when the chf is just about to be hit very hard.

  3. Bearish – for when, Monday, all week, for April?? I see euro coming off by 50-100 pips early part of next week, but beyond that, my charts show longer term bullish momentum.

    • Yohay is always bearish on EURUSD. I believe he is bearish for 1 week, but in fact he has been bearish for around 2 or 3 years.

  4. solid article and i agree. i believe the market loves to take every last second and stretch everything to its breaking point and i think it has done that. if selling doesn’t happen in the near term, i go more cautious of the position

  5. Pingback: EUR/USD Outlook April 2-6 | Forex Crunch