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EUR/USD Forecast, Majors

EUR/USD Forecast- November 26-30

EUR/USD  made impressive gains on high hopes for a resolution in the Greek crisis. After breaking back into the previous high channel, will the pair surge over 1.30? A critical Eurogroup meeting on Monday holds the key, and later, inflation and employment figures are among the highlights. Here is an outlook for the highlights of the week and an updated technical analysis for EUR/USD.

Disagreements between the IMF and the Eurogroup over Greece’s long term targets  sent the sides back to the drawing board, but they seem to be cooking something. EUR/USD already prices in a deal. However, it is important to note that the last part of the rally was also aided by positive news from Germany – a rise in business confidence. Is Europe getting its act together, or is it just some temporary optimism?

  1. Updates: Voters in the  Spanish region of  Catalonia went  to the polls on Sunday, in a  election  that some billed as a referendum on independence for the prosperous region.Although the separatist parties won a majority of seats in the local parliament,  the ruling party, CiU,  lost 12 seats,  dropping to 50 from a previous 62.  In a dramatic breakthrough, the Eurogroup and IMF reached an agreement on Greece’s long-term debt. Under the  deal, the troika agreed,  to lower interest rates on loans to Greece, and give Greece 11 billion euros from profits of the ECB purchases of Greek government bonds. As well, the zone finance ministers agreed to help Greece purchase such bonds from private investors. If all goes well, Greece  should receive the next tranche of bailout funds next month. German Import Prices declined 0.6%. The  forecast called for a drop  of  0.5%. EUR/USD continues to lose ground, as EUR/USD was trading at 1.2934. German Preliminary CPI declined by 0.1%, matching the forecast. M3 Money Supply posted its biggest jump since May 2009, rising 3.9%. This easily exceeded the estimate of 2.8%. Private Loans declined 0.7%, slightly better than the forecast of a 0.8% drop. German Unemployment Change improved nicely, posting a reading of 5 thousand. newly unemployed persons.  This was much better than the market forecast of 15K. Euro-zone Retail PMI  showed  little change,  at 45.8 points. The index has not been above the 50.0 level in over a year, pointing to ongoing contraction in the retail sector.   There was good news out of Italy, as the average yield on 10-year bonds  dropped to  4.45%. This was lower than the previous yield of 4.81%.  Deutsche Bundesbank President Jens Weidmann will speak later today at a meeting in Berlin. There are a host of euro-zone releases on Friday, including Euro-zone Unemployment Rate and German Retail Sales. As well, ECB President Mario Draghi addresses the French Treasury in Paris. The euro has moved higher, as EUR/USD was trading at 1.2981.

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

  1. Elections in Catalonia: Sunday. The rich northeastern region of Spain called early elections after a huge demonstration calling for  independence  was met with no flexibility on fiscal issues from Madrid. Pro-independence parties are expected to win, and the next move will be a referendum for independence. Spain iUnder the agreement, the troika has agreed to reduce Greece’s debt by 40 billion euros, lowering it to 124 per cent of Greek GDP by 2020. To reduce the debt, the Eurogroup s already in a deep crisis and more political instability with a risk of losing a significant source of income could weigh on the euro-zone.
  2. Eurogroup Meeting on Greece: Monday. After the previous meeting failed, there are high hopes that the a magic solution will be found to please the IMF about Greece’s debt trajectory, while not forcing euro-zone governments to accept losses. The Greek salad of lower interest rates, redistributing of ECB profits, and a buyback program for some private debt are the main ingredients that are considered. On top, some sauce of wishful thinking – picking the best case scenarios, is supposed to make everyone happy.
  3. GfK German Consumer Climate: Monday, 7:00. Consumer confidence in Germany was revised up to the highest level since 2007 in October, reaching 6.3, from an upwardly revised 6.1 in the previous month. The surge occurred amid increased optimism regarding economic expectations. Domestic consumption could be the only factor to prevent Germany from sliding into recession. The same reading is expected now.
  4. German Import Prices: Mon-Tue. Germany’s import price softened more than expected in September declining 0.7% after rising 1.3% in the previous month. Economists expected a 0.3% increase. A 0.5% decline is forecasted.
  5. German CPI: Wednesday. Germany’s economic data continues to soften with Preliminary CPI showing a flat reading, following the same reading in the previous month. Germany’s weak data is weighing on the EU, advancing risk aversion.
  6. M3 Money Supply: Wednesday, 9:00. Eurozone money in circulation grew at a slower than predicted pace in July, rising 2.7% from 2.8% in June. Economists expected the rate of growth to reach 3%. A 2.8% rise is anticipated.
  7. Private Loans: Wednesday, 9:00. Loans to companies and households in the  euro zone  declined more than expected in September edging down 0.8% from the same month a year ago, amid worsening in the euro zone debt crisis. Analysts expected a 0.4% drop. A 0.8% decline is forecasted this time.
  8.  German Unemployment Change: Thursday, 8:55. German unemployment  doubled economists forecast in October by surging a seasonally adjusted 20,000 from 1,200 in September. Analysts expected a 10,000 increase.  The Bundesbank forecasted weaker economic growth in the fourth quarter amid the European debt crisis and global slowdown. A decline to 17,000 is forecasted now.
  9. Retail PMI: Thursday, 9:10. Euro Zone retail sales declined more the expected  in September, down by 0.2% from a 0.2% increase in August. The PMI dropped from September’s three-month high of 47.1, to 45.3 indicating the retail sector remained depressed at the start of the final quarter of 2012.
  10. German Retail Sales: Friday, 7:00. Germany’s retail sales increased more than predicted in September, surging 1.5% from 0.1% increase in August, raising hopes that domestic consumption will underpin economic activity in the third quarter.  The government revised down its growth forecast for next year to 1.0%, but raised the 2012 GDP outlook to 0.8%. A 0.3% decline is predicted now.
  11. French Consumer Spending: Friday, 7:45. French consumer spending climbed moderately by 0.1% in September, following 0.8% drop in August. The reading was below the 0.2% increase forecasted by analysts. This small rise may indicate an increase in spending for the thirds quarter. A drop of 0.1% is forecasted now.
  12.  CPI Flash Estimate: Friday, 10:00. Eurozone inflation declined in October, reaching 2.5%, in line with predictions, following 2.6% in September. Commodity prices remained relatively high as well as energy prices, maintaining inflation. A further decline to 2.4% is expected now.
  13. Unemployment Rate: Friday, 10:00.  Unemployment in the euro zone edged up 11.6% in September, posting a record high reading, following 11.5% in August.  The number of unemployed people in rose by 146,000 to 18.49 million.  Spain, has the highest unemployment rate of 25.8%, followed by  Greece at 25.1% and Portugal at 15.7%. Another increase to 11.7% is expected.

*All times are GMT.

EUR/USD Technical Analysis

€/$ kicked off the week by climbing and trading above the 1.2750 line (mentioned  last week). An initial struggle didn’t work, but the second move was already stronger, and the pair moved higher passing quite a few hurdles and getting very close to the 1.30 line.

Technical lines from top to bottom:

We start from higher ground this week. 1.34 was a stubborn cap during the spring of 2012 and is the far line in the distance. Below, 1.3290 served as resistance before the pair collapsed in May.

1.3170 worked very well as a double top during September 2012 and is now the top frontier of the range. A failure to get closer to this line shows that the pair has limited momentum. 1.3140 was the high of October and is minor resistance before 1.3170.

1.3080 capped the pair in September and then again in October. 1.3030 provided some support at the same period of time. Both are minor in comparison with the next line.

The very round 1.30 line was a tough line of resistance for the September rally. In addition to being a round number, it also served as strong support. It recently worked as a battleground and the pair is now well below this line. It is closely followed by 1.2960 which provided some support at the beginning of the year and also in September and October – the line is weaker now.

1.2880 provided some support in October and now switches to support once again. It proved to be a backstop on the initial false rally after Obama’s victory. 1.28 is the bottom border of the range, and was eventually left behind. The pair fell to this low in September and later got close to it.

1.2750 capped the pair after the Greek elections and also had a similar role in the past. It is now a pivotal line in the range.  1.2690 was the new low after the November breakdown, and also provided support on a second downfall attempt in November 2012.

1.2624 was the low in January and now serves as weak support,1.2590 was a cap during August, before the pair surged.

Below, the round number of 1.25 is not only of high psychological significance (USDEUR 0.80) but also worked as support during the summer of 2012. 1.2440 is already a stronger line, that was a clear separator during August.

Below, 1.2390 was resistance in July. 1.2250 is lower support, also at that time.

Back to the Narrowing Channel

Euro/dollar made a big comeback and crept back into the narrowing channel that characterized its trading during September and October.  The break above what was uptrend support, now higher than earlier, is a bullish sign.

I am bearish on EUR/USD

The bearish sentiment is mainly due to high expectations for a resolution for Greece. Indeed, it seems that the EU and the IMF are  preparing a Greek salad of half measures and wishful thinking, avoiding the need for accepting losses.  This is already priced in. If this is the case, we could have a “buy the rumor, sell the fact” effect – profit taking. If there is no deal, there is a lot of room on the downside. In addition, elections in  Catalonia will likely see a victory for pro-independence parties, with a possible majority for CiU – something that could weigh on the integrity of Spain and on the euro.

In the US, data is still affected by the Sandy super-storm. However, the revised GDP figure for Q3 is unaffected, and will be closely watched as Americans return from their Thanksgiving holiday. In addition, headlines from Capitol Hill regarding the fiscal cliff will make an impact.  Here is all you need to know about the cliff.

More on Greece:

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

Yohay Elam

Yohay Elam

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 a 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.