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After we got the biggest hint for a European rate hike, another busy week is expecting Euro/Dollar traders. Here’s an outlook for the European events, and an updated technical analysis for EUR/USD.

Jean-Claude Trichet used the code words “strong vigilance” and even went one step further in saying that a rate hike in April sure is possible. Together with the rising price of oil, the Euro also enjoyed the weakness of the greenback, and reached new highs for this year. Will this trend continue?

EUR/USD daily chart with support and resistance lines on it. Click to enlarge:

EUR USD Chart March 7-11

  1. Sentix Investor Confidence: Monday, 9:30. This wide survey of 2800 analysts and investors is on the rise. It surprised last month with a rise to 16.7 points, continuing a nice trend. A smaller rise is expected now.
  2. German Factory Orders: Tuesday, 9:00. Europe’s largest economy experienced a sharp fall in the volume of orders last month – 3.4%, a fall that hurt the Euro, although it was a correction to a leap beforehand. A rise is predicted now.
  3. German Industrial Production: Wednesday, 9:00. The second and related industrial number also saw a drop – 1.5%, when a rise was expected. Germany releases the industrial output figure before France and before the all-European figure, making this publication important. A significant rise is likely now.
  4. German Trade Balance: Thursday, 7:00. Germany enjoys a big surplus in its trade balance, due to its export oriented economy. The surplus is expected to tick higher from last month’s 14 billion.
  5. French Industrial Production: Thursday, 7:45. Europe’s second largest economy is performing beyond expectations. In the past two months, industrial output came out better than expected, Another rise of 0.3% is due now, like last month.
  6. ECB Monthly Bulletin: Thursday, 9:00. One week after the rate decision, the ECB published the statistical data it views before making its decision. This will shed some light on inflation concerns and about growth. The publication always rocks the Euro.
  7. German Final CPI: Friday, 7:00. While the final number usually isn’t much different from the initial release, the growing importance of inflation in the world makes it a market mover for the Euro. Expectations are for a confirmation of the 0.5% rise.
  8. EU Economic Summit: Friday. This specific summit will be very tense. The new Irish government wants to renegotiate the terms of the bailout – allow some restructuring of debt, allow haircuts, or at least lower the punitive interest rate that Ireland pays. This will be met with strong opposition by the stronger European countries. The German public doesn’t want additional concessions. Statements released around the summit will rock the Euro and will supply a strong finish to the week.

EUR/USD Technical Analysis

Euro/Dollar struggled at the beginning of the week with the 1.3860 line (discussed last week). After it conquered this line, it continued higher and settled over 1.3950, at 1.3985.

Looking down, 1.3950 served as support just now, and also was a pivotal line the last time the pair was at these levels. It now provides immediate support. It’s followed by 1.3860, which was a strong line of resistance and the highest level in 2011 until being broken.

Below, 1.3760 served as resistance a few weeks ago, and is no support as well. 1.37 worked in both directions in recent months and is the next line of support.

Lower,  1.3570, a line which worked in both directions in recent weeks now provides the next line of support.  The last line for now is a strong one – which was a very stubborn peak in the past three months now works as support. An attempt to dip below this line failed.

Looking up, 1.4030 is the immediate line of support. While the round number of 1.40 is eyed by the ECB, triggering a comment by Trichet about “excessive volatility in currency markets, real resistance is only at 1.4030.

Above, the peak of 1.4160 is another minor line. It was a peak late in 2010. It’s followed by 1.4280 that is the highest level in a year and is becoming closer.

Higher above, we see only levels reached in 2009 – 1.44 is the first line, followed by 1.4550, but this currently far away.

I am neutral on EUR/USD.

The clear statement about rate hikes will continue to boost the Euro, as well as the strength in Germany. On the other hand, the US economy is moving forwards, as seen in the improving job market, and another round of the debt crisis is around the corner. Choppy trading is likely, until a new direction is seen – probably down.

This pair receives excellent reviews. Here are my picks:

  • James Chen provides a technical analysis after Euro/Dollar hit 1.40.
  • Mohammed Isah sees a bullish trend and more gains ahead.
  • Kathy Lien explains what US yields are telling us about EUR/USD.
  • TheGeekKnows writes a review of the past week looks forward.
  • Andriy Miraru provides weekly support and resistance lines for major pairs, including EUR/USD.

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