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Trouble loved the Euro in the past week, with all the factors playing against it. After losing around 500 pips, it is now facing more updates from the ECB and important GDP figures among other indicators. Here’s an outlook for the events moving the Euro, and an updated technical analysis for EUR/USD, that lost the uptrend channel.

Trichet’s dovish stance about inflation and his wish for a strong dollar were the initial blow. Trichet also started a fall in commodities, which also weakened the Euro. And then, the Greek restructuring talks unexpectedly accelerated, just before the markets closed, sending the pair very low. News about Greece will continue during the weekend and throughout the week. Let’s start:

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

EUR USD Chart  May 9-13

  1. German Trade Balance: Monday, 6:00. Europe’s largest country disappointed last month and posted a lower surplus than expected, only 11.4 billion euros. Germany’s exports are now expected to rise, raising the surplus to 12.5 billion. Although it’s important to note that factory orders significantly dropped in Germany, so this may weigh on trade balance.
  2. Sentix Investor Confidence: Monday, 8:30. This wide survey saw nice rises in confidence, but these rises came to a halt last month with an unexpected drop from 17.1 to 14.2 points. Another drop is likely now, given the uncertainty in the continent.
  3. French Industrial Production: Tuesday, 6:45. Europe’s second largest country saw 4 consecutive months of solid growth in industrial output. A rise of 0.5% is expected to follow last month’s 0.4% rise. This is in line with similar levels of growth in Germany.
  4. German Final CPI: Wednesday, 6:00. While the final print of CPI usually echoes the initial read, the rising importance of inflation on the currency, makes the Euro sensitive to any change here. An upwards revision from 0.2% to 0.3% is predicted.
  5. ECB Monthly Bulletin: Thursday, 8:00. These papers will show us what the ECB saw before making its dovish statement. Is the Euro-zone already slowing down as a result of the rate hike? What is expected in the upcoming months? The tone of this report will rock the common currency.
  6. French CPI: Thursday, 5:30. After surprising with a strong rise in prices last month, 0.8%, the pace is expected to slow in Europe’s second largest economy, to 0.5%. Also here, this isn’t the most important inflation figure, but the Euro recently reacts to any move.
  7. Industrial Production: Thursday, 9:00. The industrial output figure for the whole continent is published after the main countries already released their own. Nevertheless, the figure still tends to surprise and rock the euro. A rise of 0.4% is expected to follow last month’s 0.4% rise.
  8. French GDP: Friday, 5:30. The best is kept for last, with the GDP releases. The initial releases tend to have the strongest impact.  France starts them early in the day. 0.6% growth is expected in the first quarter of 2011, up from 0.4% in the last quarter of 2010. This will be close to the highest quarterly growth rate seen since the beginning of the crisis in France, 0.7%, and can cheer the Euro.
  9. German GDP: Friday, 6:00. There are also high hopes from Germany. The economy is expected to grow at a good pace of 0.9%, stronger than the previous two quarters that saw 0.7% (Q3) and only 0.4% in Q4. A rise of over 1% will be very helpful from Europe’s largest economy. A figure under 0.5% will be very disappointing.
  10. French  Non-Farm Payrolls: Friday, 6:45. This is a quarterly figure, making the release important, even though it happens amidst all the GDP releases. A rise of 0.4% is expected in French jobs, double the pace seen last quarter, and the highest since the financial crisis began.
  11. Jean-Claude Trichet talks: Friday, 8:00. There’s no doubt that the president of the European Central Bank is a major market mover. Trichet will come to Madrid, to talk about reforms in banks, something that the host nation is quite busy with. It currently seems that Spain managed to decouple itself from Greece, Portugal and Ireland.
  12. All-European GDP: Friday, 9:00. If German and French GDP releases are good, the overall picture can be disappointing, as many countries are still struggling. But also here, expectations are high – a growth rate of 0.6% is expected for all of the 17 countries in the zone, double the figure in Q4 2010.

* All times are GMT.

EUR/USD Technical Analysis

Euro/Dollar had a tight beginning to the week, most of the time capped by the 1.4882 line (discussed last week). And then came the downfall. The pair temporarily stabilized between the 1.4520 and 1.4580 lines, before making a second collapse and closing at 1.4313, around 500 pips lower.

Technical levels, from top to bottom:

1.4950, was the peak reached in the past week and is the top line of resistance, though quite minor. 1.4882 was the previous peak and also the top border of the tight range trading, and is a more serious line.

1.4775 was the support line of the tight range trading. 1.47 is a rather minor line, that only temporarily capped the pair on its way up.

1.4650 was a peak on the way up, and then switched to significant support. It’s strong resistance now. 1.4580 was a line of resistance in the short stabilization period in the past week, and also in mid-April, and is a strong line of resistance now.

1.4520 was the bottom border of that range and an even stronger line, as it already worked as tough resistance a few weeks ago. Minor resistance is at 1.4450, which was an important line in the past, and also pivotal a few weeks ago.

1.4375 provided support a few weeks ago, and held the pair for a short period of time before the final fall. It serves as strong immediate resistance. The peak of November 2010 at 1.4882 is weaker than before, but is still an important line of support.

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’s strong support now. 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 is minor support now. More important support is at 1.3860, which worked in both directions earlier this year.

1.3750 is the next important line, serving as resistance back in January, and as an important line of support in February. The last important line is 1.3440, that is very distinctive. It’s still far.

Uptrend channel broken

As you can see in the graph, an uptrend channel has accompanied the pair since the beginning of February, has been broken. The uptrend support line is now about 80 pips the current close. It will be quite hard for the pair to get back up there.

I remain bearish on EUR/USD.

The change in Trichet’s attitude towards inflation and his concern over the dollar are both major – they take the hot air out of commodities and out of the euro. Add the accelerated pace of the Greek crisis, that could spread to other countries. Add the worrying signs of slowdown from Germany. And add the break of the uptrend channel, and the euro has more than enough reasons to continue downwards.

Here are some recommended reads for the pair:

  • FX Tech Strategy discusses the pair approaching the euro/dollar channel, which is now broken.
  • James Chen sees a drop to strong confluence in EUR/USD.
  • Andriy Miraru provides weekly support and resistance lines for major pairs, including EUR/USD.
  • TheGeekKnows writes a review of the past week looks forward.

Further reading:

 

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