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Employment figures are the highlight of this week’s busy European calendar, as the old continent continues to struggle with the contagious debt disease. Here’s an outlook for the events the will move the Euro, and an updated technical analysis for EUR/USD.

Euro/Dollar graph with support and resistance lines marked. Click to enlarge:

eur usd forecast

The report that Spain, Portugal and Greece are in debt of 2 trillion euros hurt the common currency, but China’s sign of confidence helped stabilize it. With the recent downgrade of Spain’s credit rating by Fitch, the crisis now focuses more and more on the Iberian peninsula than on Greece. OK, let’s start:

  1. Jean-Claude Trichet talks: Begins speaking on Monday at 00:25 GMT. The president of the ECB participates in a conference by Korea’s central bank, via  satellite. Trichet usually shakes the markets. As this speech comes so early in the week, any comments about the debt crisis will cause moves.
  2. M3 Money Supply: Published on Monday at 8:00 GMT. The amount of money in circulation dropped in recent months, signalling deflationary pressure and contradicting the small rise in CPI. The year-over-year value fell by 0.1% last month. The forecast is for a 0.2% drop this time.
  3. CPI Flash Estimate: Published on Monday at 9:00 GMT. The Euro-zone’s annual rise in prices climbed to 1.5%, the highest since the end of 2008. Looking at other inflation-related figures, a significant pick up of inflation isn’t expected in Europe – a rise to 1.7% is expected this time, but given the crisis, it could be lower. Note that this is the initial release.
  4. Axel Weber talks: Starts speaking on Tuesday at 5:00 GMT. The president of the German Bundesbank, an influential member of the ECB and the main candidate to replace Trichet, usually stirs the markets. His speech in Frankfurt is likely to do it once again.
  5. German Retail Sales: Published on Tuesday at 6:00 GMT. Europe’s locomotive suffered a big drop in retail sales last month – a drop of 2.4%. This report relates to May, and it will probably show that consumers were more careful amidst the big crisis and the talks of an austerity plan. A rise of 0.7% is expected now.
  6. German Unemployment Change: Published on Tuesday at 7:55 GMT. Germany showed impressing drops in the number of unemployed people – 68,000 last month and 42,000 in the previous month. A smaller drop is predicted this time, 17,000, as consumer and investor confidence is down, and the turmoil in the content will also reach the German job market.
  7. Unemployment Rate: Published on Tuesday at 9:00 GMT. The various countries in the Euro-zone vary in their unemployment rate. Spain reported over 20%. The average for the euro zone stands on 10%, a number that has been rather stable for 6 months, and causes worries. A drop under this double digit figure will sure help, but there’s a bigger chance of a rise – hurting the Euro.
  8. PPI: Published on Wednesday at 9:00 GMT. Producer prices have a tendency of jumping in one month and then stalling in the next month. Last month’s rise of 0.6% was weaker than expected, but this month is still expected to see a smaller rise in prices – closer to 0.
  9. Retail Sales: Published on Thursday at 9:00 GMT. Despite being release after the German release, the all-European number is of high importance. The volume of European sales hasn’t risen since January, and this isn’t expected to be seen now. No change in sales volume was reported last month, and an insignificant rise of 0.1% is the forecast for this release.
  10. Revised GDP: Published on Friday at 9:00 GMT. This revision usually confirms the initial read, but it still shakes the markets. The Euro-zone’s growth in Q1 was 0.2% – quite weak. An upgrade will help the Euro, as the second quarter will probably see a return to contraction.

EUR/USD Technical Analysis

The Euro traded in a range, going lower throughout most of the week. The pair reached 1.2152, just 10 pips away from the 4 year low that it reached in the previous week, before making a neat comeback but finally settling at 1.2270 – a weekly loss of over 350 pips.

The Euro now trades between the 4 year low of 1.2142 and the “Lehman levels” of 1.2330. Some of the levels have changed since last week’s outlook.

Looking up above 1.2330, the next level of resistance is at 1.2460, which was the past week’s high and also a support line back at the beginning of 2009.

Above, 1.2672 provides minor resistance after breaking one of the short lived Euro recoveries. Higher, 1.2880 was another line of support in 2009, and it’s followed by 1.3114 and 1.3267, which held Euro/Dollar before the collapse.

Looking down below 1.2142, the round number of 1.20 is the next line of support. Stronger support appears at 1.1820, and its followed with 1.1630, which is the lowest level since 2003.

I continue being bearish on EUR/USD.

Another week of high volatility had one point of light – the Chinese denial, but ended with a dark tone – another credit downgrade, and an appetite for new lows. The contagious debt diseases are very far from over. A break under 1.20 could be seen soon.

This pair receives many great review on the web. Here are my picks:

  • James Chen, in his new blog, sees more downside risk despite the double bottom.
  • Kathy Lien sees more downside for the Euro in an interview on Bloomberg.
  • Casey Stubbs covers the Euro/Dollar, and you can also find a coverage for EUR/JPY, also shaking on the risk factor.
  • Andrei reports on the volatility that EUR/USD feels following bad news on all fronts. He usually posts technical levels towards the new week.
  • TheGeekKnows reviews the week and looks forward.

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