EUR/USD Outlook – October 25-29

A busy week awaits Euro traders – inflation, employment and important speeches are part of the 10 events. Here’s an outlook for these events, and an updated technical analysis for the choppy EUR/USD.

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

EUR/USD finally closed lower, after risk aversion returned to the markets, and the Euro failed to close above 1.40 once again. Are the tables turning? Now it depends mostly on domestic data, and not on dollar weakness. Let’s start:

1. Industrial New Orders: Monday, 9:00. The value of orders that manufacturers received took a dive of 2.1% after a few positive months. This important indicator is now expected to correct with a rise of 2.1%.
2. German  GfK Consumer Climate: Tuesday, 6:00. GfK polls 2,000 consumers about their future economic expectations. This index made an impressive rise last month to 4.9 points. Another rise to 5.2 points is expected now. Any surprise will shake the Euro.
3. Axel Weber speaks: Tuesday, 17:00. The leading candidate to replace the ECB president stood out in the past week as he opposed further bond buying actions, and differentiated himself as a hawk, angering the French president. His speeches always rock the Euro, and so will this one in Berlin.
4. German CPI: Wednesday. The various German states release their consumer price indices throughout the day. This is the initial estimation of inflation for October. After prices fell by 0.1% last month, a rise of the same scale is expected now. Only a rise of over 0.5% will fuel the Euro.
5. French Consumer Spending: Wednesday, 6:45. Europe’s second largest economy saw a plunge in consumer spending in August – 1.6%. A correction is expected this time with a rise of 0.5%.
6. M3 Money Supply: Wednesday, 8:00. After a few months of drops in the amount of money in circulation,  growth returned three months ago. This went hand in hand with the slow rise of inflation in the continent. After last month’s surprising 1.1% rise, a 1.4% rise is expected now.
7. German Unemployment Change: Thursday, 7:55. Germany is undoubtedly the locomotive of the Euro zone, and this is apparent when looking at the number of unemployed people, that reached the lowest level since 1992. Yet another drop is expected now, 27K, lower than last month’s drop of 40K. A bigger drop will boost the Euro.
8. Jean-Claude Trichet talks: Thursday, 8:30. The president of the ECB will have another chance to comment on the bond buying scheme on which he differs with Weber, on the situation of the Euro-zone’s economies and also about the G20 meetings. Any comment on currencies will rock the markets.
9. CPI Flash Estimate: Friday, 9:00.  Following the German release, the all-European release is also expected to be stable. Inflation already climbed to an annual rate of 1.8%, and is now expected to drop to 1.7%. This initial publication of CPI for October will likely eliminate any possible pressures for a rate hike.
10. Unemployment Rate: Friday, 9:00. The  Achilles  heel of the Euro-zone is unemployment. Contrary to Germany, other countries are struggling. Spain has an unemployment rate of 20%, and Greece suffers from a 12% rate. The all-European rate is expected to stay at 10.1%. A drop from double-digits will help the common currency.

EUR/USD Technical Analysis

1.3950 served as a pivot line for EUR/USD during most of the week, and the close around it, slightly lower than last week, symbolizes it.

Higher, 1.4030 proved once again to be an important line. It supported and later resisted EUR/USD at the beginning of the year as well. Also note the 1.40 line, which is referred to by many politicians.

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

Below, 1.3830 was a strong line of support during February and March, and also worked in the past week. The 1.37, which was the bottom in the past choppy week is a minor level of support. 1.3637 was the bottom recently and and already serves as a stronger support line.

Lower, 1.3530 was a support line at the beginning of the year, and had a minor role last month. Just under it, 1.3435 provided strong support in February and is yet another minor line. 1.3334 was a peak in mid August, a peak that held for quite some time.

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.

The steep uptrend channel that accompanied the pair in the past six weeks was broken too many times. EUR/USD closed below it. It still appears on the charts, but it’s importance is lower now.

I remain bearish on EUR/USD.

It looks like the tables have turned in favor of the dollar, with the quantitative easing program already fully priced, and the results of the G20 meetings being positive for the dollar against the Euro.

This pair receives excellent reviews on the web:

• Jamie Coleman analyzes the surprising G-20 deal, and the implications for currencies, including the Euro. Kathy Lien wrote about the implications for the Euro before the meetings.
• Adam Kritzer sees the Euro due for a correction.
• James Chen analyzes shifts in currencies’ strengths and weaknesses and sees the dollar above the Euro.
• Casey Stubbs asks if the EUR/USD bullish run is over, and provides interesting answers.
• 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 and sees a sell trend this week.

Further reading:

• For a broad view of all the week’s major events worldwide, read the  USD outlook.
• For the Japanese yen, read the  USD/JPY forecast.
• For GBP/USD  (cable), look into the  British Pound forecast.
• For the Australian dollar (Aussie), check out the  AUD to USD forecast.
• For the New Zealand dollar (kiwi), read the  NZD forecast.
• For USD/CAD (loonie), check out the  Canadian dollar forecast.

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