The Euro had a bad week, losing an important support line. The upcoming week consists of many employment and inflation figures. Here’s an outlook for the events that will move the Euro, and an updated technical analysis for EUR/USD, looking down.
EUR/USD chart with support and resistance lines marked. Click to enlarge:
The breakdown of the Euro has many reasons: two of them are in the flanks of the continent – Portugal, with a credit downgrade, and Greece, with an ongoing debt crisis. These issues will continue to be a burden on the Euro. Let’s start the review. The technical analysis will follow:
- German Prelim CPI: Published on Monday. German prices rose by 0.4% last month, which is a healthy rise. But this figure is quite volatile – after a strong rise 3 months ago, a big drop followed. A rise in consumer prices is a must for a hike of the interest rate. A rise of 0.4% is predicted this time.
- Consumer Confidence: Published on Monday at 9:00 GMT. This official survey of 2,300 European consumers has been stable in recent months, scoring -17 last month – exactly as expected. The negative score means that consumers are pessimistic. The score was much lower during the height of the global crisis. The score will probably remain unchanged.
- German Import Prices: Published on Tuesday at 6:00 GMT. After a leap of 1.7% last month, a more modest rise of 0.5% is predicted this time. Import prices don’t seem to have a significant impact on consumer prices.
- German Unemployment Change: Published on Wednesday at 7:55 GMT. After 6 consecutive months of drop in the number of unemployed people, the past two months saw a rise – at least it was a smaller rise than expected. Germany’s job market is significantly better than most of the continent. A rise of 10,000 unemployed people is expected this time.
- CPI Flash Estimate: Published on Wednesday at 9:00 GMT. Two days after the German figure, the initial estimate for the whole continent is due. This figure is more stable, rising between at around 1% (annualized) in the past three months. Also here, a stronger number is necessary for a rate hike. It’s predicted to edge up from 0.9% to 1.1%.
- Unemployment Rate: Published on Wednesday at 9:00 GMT. Europe’s unemployment rate currently stands at 9.9%. The drop below the double digit figure of 10% is a small psychological relief – though Europe has other problems. If expectations are met, and the rate gets back to 10% – this will hurt the Euro.
- German Retail Sales: Published on Thursday at 6:00 GMT. The continent’s largest country and economic locomotive showed a drop of 0.5% in retail sales last month, weaker than expected. A rise of 0.3% is predicted this time.
- Final Manufacturing PMI: Published on Thursday at 8:00 GMT. The initial release for Manufacturing PMI surprised with a score of 56.3 points. This will probably be confirmed in the final release.
EUR/USD Technical Analysis
The Euro began the week with a drift around the bottom of the range. It then made the big collapse below 1.3423, and all the way up to 1.3267, before making a partial recovery and closing at 1.3409.
I’ve slightly modified the support and resistance lines from last week’s outlook. EUR/USD is now capped by 1.3435, an extension of the previous 1.3423 support line. This is a very strong resistance line. From the bottom, 1.3267, the past week’s low supports the Euro. This is also 50% of the range between 1.3435 to 1.3080, the next major support line.
1.3080 was an important line before the Euro made its long term move against the dollar during most of 2009, and provides strong support. Below, 1.2880 is the next significant line of support.
Looking up above 1.3435, many minor resistance lines appear: 1.3530, 1.3640 and 1.3780 are all minor hurdles within the previous range. The most important resistance line up there is at 1.3850 – the recent failure to break this line sent the Euro down.
I am bearish on EUR/USD.
The Greek accord isn’t enough – not for Greece and not for other European troubles. As long as 1.3435 isn’t breached, the direction continues to be down. The recovery near the end of the week could be another rise before a plunge.
This pair receives many interesting articles on the web. Here are my favorites:
- Casey Stubbs analyzes the break with his 4-hour charts and asks if more will come.
- Jack Crocks on TheLFB analyzes the what he calls the Euro-land’s surrender regarding responsibility.
- The Geek Knows reviews the week and looks forward to the next week.
- John Rowa, on IntegrityFXPlus, asks if the Euro is headed for a plunge on Monday.
- Kathy Lien explains why the credit downgrade of Portugal is so damaging for the Euro.
- For a broad view of all the week’s major event in all currencies, read the forex weekly outlook.
- For the British Pound, look into the GBP/USD forecast.
- For the Australian dollar, read the AUD/USD forecast.
- For USD/CAD, check out the Canadian dollar forecast.
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