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The Euro had another amazing week, breaking significant levels every day. It now faces a wide variety of releases, with the rate decision in the limelight. Here’s an outlook for the European events and an updated technical analysis for EUR/USD.

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

eur usd forecast October 4-8

The Spanish credit downgrade and the problems in the Anglo Irish bank couldn’t stop the Euro. Net dollar shorts are at the highest levels since the summer of 2008. If everybody’s short, who’s left to sell? It will be interesting to see if Trichet says something about the currency after the rate decision. Let’s start:

  1. Sentix Investor Confidence: Monday, 8:30. This official survey of 2800 analysts and investors disappointed last month by dropping to 7.6 points. It’s now expected to climb up to 8.6 points, indicating stronger optimism.
  2. PPI: Monday, 9:00. Producer prices aren’t expected to follow consumer prices. The all-European figure is released after Germany and France release their own. Nevertheless, it tends to move the Euro. Monthly PPI is expected to rise by 0.2%, slightly slower than last month.
  3. Retail Sales: Tuesday, 9:00. After a significant drop of 0.9% four months ago, the volume of sales posted gains in the past three months. Also here, the data is released after the biggest countries have already published their own, but the figure tends to surprise. A 0.2% rise is predicted this time.
  4. Final GDP: Wednesday, 9:00. According to the initial release, Q2 was surprisingly good in Europe, with a 1% growth rate. Germany stood out with a whopping 2.2% growth rate. This 1% figure will probably be confirmed now. Surprises are rare with this publication.
  5. German Factory Orders: Wednesday, 10:00. Europe’s economic locomotive disappointed last month with big drop of 2.2% in the total value of orders. A rise of 0.9% is expected to provide a nice correction for last month’s fall.
  6. German Industrial Production: Thursday, 10:00. Complementing on factory orders, this related figure also disappointed last month with a modest 0.1% rise. A stronger rise is expected now – 0.4%. This comes very close to the rate decision.
  7. Rate decision: Thursday, 11:45.  The president of the ECB sees inflation gradually rising in the Euro-zone (1.8% annually), but unemployment is still high, 10.1%. The gap between the different European countries is widening. The result will probably be another month of an unchanged rate at 1%. Any comment about the state of the economies and especially about the debt issues, now in Ireland, will move the markets. The press conference will be held at 12:30, and Trichet usually says something that shakes the Euro.
  8. German Trade Balance: Friday, 6:00. Germany enjoys a significant surplus in its trade balance, as its economy is export-oriented. After reaching 12.7 billion last month, the surplus is expected to squeeze down to 12.2 billion this time.

All times are GMT.

EUR/USD Technical Analysis

The Euro began the week with a struggle between 1.3430 and 1.35, but then jumped above 1.3530 and traded in a range between 1.3530 and 1.37 (all lines mentioned last week as well), before breaking 1.27 and closing at 1.3790 – another impressing weekly gain of 300 pips.

EUR/USD is now between 1.37 that provided resistance in the past week and also in April, and 1.3850 from above. This line supported the Euro in January, and then turned into a fierce resistance line.

Above, 1.40 is a round psychological number and also provided support in 2009. The next line of resistance is at 1.42, that provided support for the Euro during December 2009.

Higher, 1.4450 worked as resistance twice in 2009. It’s followed by 1.4580, a swing high in January, before the pair deteriorated quickly.

Looking down, 1.35-1.3530 is an area of support after working as resistance in the past week. It’s followed by 1.3430 that provided support in February and also recently.

Lower, 1.3267 is the next support line, after working as such twice in March and April, recently working as resistance. Below, 1.3110 is another line of support that later worked as resistance.

1.3050 is a minor line of support, after working as resistance. It’s followed by 1.2920 that capped the pair in September and 1.2730 which had the same role.

Note that since the beginning of September, EUR/USD is trading in a very steep uptrend channel (also marked in the graph). It will be interesting to follow this channel in the upcoming week.

I now turn from bullish to bearish on EUR/USD.

There are several reasons: European debt issues, which were reflected in the Anglo-Irish problems and demonstrations across the continent, cannot remain under the carpet for too long. The net dollar-short positions is at the highest levels since the summer of 2008 – the time when the Euro began collapsing. And I believe that even the Euro bulls can agree that a retracement is needed after scooping 1100 pips in a month.

This pair is closely followed on the web. Here are my recommended reads:

  • Jamie Coleman points out the correlation between the high dollar shorts in 2008 and the fall of the Euro then.
  • Adam Kritzer sees the debt issues pushed aside and sees long-term bullishness.
  • James Chen also marks the steep channel and sees the target getting close.
  • Andriy posts technical levels for the EUR/USD and other pairs on a weekly basis.
  • Casey Stubbs follows this pair closely.
  • TheGeekKnows writes a review of the past week looks forward.

Further reading:

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