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Apart from news about debt issues, inflation and industrial production are the highlight’s of this week’s European events. Here’s an outlook for these events and an updated technical analysis for EUR/USD.

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

EUR USD Forecast October 11 12 13 14 15

Europe isn’t participating in the global currency war, and found itself losing – seeing the Euro rise. But this can’t go on forever. Where will it go this week? Let’s start:

  1. French Industrial Production: Published on Monday at 6:45. Europe’s second largest economy enjoyed a nice rise in industrial output last month – 0.9%. This figure is relatively volatile. A smaller rise is expected now – 0.3%.
  2. German Final CPI: Tuesday, 6:00. While inflation may be picking up in other Euro-zone countries, Germany’s CPI very stable. After being unchanged last month, the initial release for this month suggests that prices dropped by 0.1%. This will probably be confirmed now.
  3. Industrial Production: Wednesday, 9:00. Following Germany and France, the all-European number will be published. Germany’s rapid growth will probably be reflected in this indicator as well, with industrial output growing faster at 0.7% – more than last month’s 0.1%.
  4. ECB Monthly Bulletin: Thursday, 8:00. The European Central Bank releases the data that central bankers used for their rate decision. Forward looking forecasts about the zone’s economies and hints about monetary policy always rock the markets.
  5. CPI: Friday, 9:00. According to the preliminary release, the annual inflation rate reached 1.8% in September. Consumer prices are gradually starting to pick up, but they’re currently not a threat on stability. This number will probably be confirmed now. Core CPI is also moving higher, but more slowly. It’s expected to be confirmed at 1% (annualized).
  6. Trade Balance: Friday, 9:00. The deficit in the trade balance was smaller than expected last time – only 0.2 billion. Given Germany’s smaller than expected surplus, the all-European trade balance is likely to widen again. Only a big jump will have a significant impact on the currency.

* All times are GMT.

EUR/USD Technical Analysis

At the beginning of the week, EUR/USD dropped as low as 1.3637 before jumping higher. After a struggle around 1.3832, the pair made a break higher, crossed 1.40 and stopped at 1.4029 (a line modified from last week’s outlook). It finally closed at 1.3955.

EUR/USD is capped by 1.4029 – the line that was the peak in the past week and also a peak in February. The round 1.40 level is eyed by many politicians.

Above, 1.4217 capped the pair in January and served as a support line in December. Higher, 1.4450 worked as a support and resistance line during that same period of time. The next level is 1.4580 which was a stubborn peak around January as well.

Looking down, 1.3830 proved to be a tough line in the past week, and also during February and March. 1.3637 was the bottom in the past two weeks and is another strong line of support.

Lower, 1.3530 worked as support at the beginning of the year, and also in recent weeks. Below, 1.3435 provided strong support in February and is now a minor line.

The next lines below are 1.3267, which provided support recently, and 1.3114, which worked in both directions many times in the past. There are more lines below.

It’s also important to note the steep uptrend channel (also marked in the graph). While the uptrend resistance line is harder to draw, the uptrend support is clear. EUR/USD got close to this line in the past week, but managed to hold on to the channel.

I am bearish on EUR/USD.

There are many reasons why the Euro became vulnerable. It has already shown signs of weakness by not holding on to 1.40 – a line that is closely watched European officials. In addition, the size of the new American QE program isn’t necessarily that big. Uptrend support should be closely watched this week.

EUR/USD gets excellent coverage on the web. Here are my picks:

  • James Chen sees more bullishness, despite the pullback.
  • Kathy Lien analyzes the US Non-Farm Payrolls and the dollar sell-off and sees the dollar stabilizing only when Treasury yields stop falling.
  • Jamie Coleman reports on the intensifying ECB “jawboning” about the strength of the Euro. Is Europe joining the currency war?
  • Casey Stubbs follows this pair closely.
  • TheGeekKnows writes a review of the past week looks forward.
  • Andriy posts technical levels for the EUR/USD and other pairs on a weekly basis.

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