EUR/USD Outlook – September 13-17

The important German ZEW Economic Sentiment is the highlight among  6 events that will shape the Euro’s trading this week, in addition to fresh news about the continent’s debt problems. Here’s an outlook for these events, and an updated technical analysis for EUR/USD.

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

The European debt issues made a comeback in the past week, with new articles that recycled old news, and also fresh headlines from Ireland and from the Basel III decision. Will the downfall continue? Let’s start:

1. Industrial Production: Published on Tuesday, 9:00.The release of industrial output for the whole continent is released after Germany and France release their own figures. Nevertheless, surprises in this publication are quite common, and they have a strong impact on the Euro. After 5 months of rises, industrial production dropped by 0.1% last month. A small rise of 0.2% is expected this time.
2. German ZEW Economic Sentiment: Published Tuesday, 9:00. This survey of 350 analysts and investors always rocks the Euro. In the past four months, it has shown significant drops, short of  expectations, reaching 14 points last month, still in positive territory, meaning small economic optimism. Another drop is expected now. Note that there is also a score for the whole continent, but it’s considered less accurate than the German survey. It’s also expected to fall from 15.8 points printed last month.
3. CPI: Published Wednesday, 9:00. The initial CPI release showed that inflation slowed from an annual rate of 1.7% last month to 1.6% this month. Needless to say, this means that no pressure for a rate hike exists. This figure will probably be confirmed now. Core CPI will probably be confirmed at weaker annual rate of 1%.
4. Trade Balance: Published Thursday, 9:00. The number for the whole continent is released after the publications from Germany and France. Nevertheless, it still has an impact on the Euro. The Euro-zone got into a deficit in the trade balance two months ago, but it halved last month to 1.6 billion. A smaller deficit is predicted now – 0.7 billion.
5. German PPI: Published Friday, 6:00. Producer prices have been significantly stronger than consumer prices in the past few months, and exceeded expectations. Currently this doesn’t turn into consumer inflation. After rises of 0.5% and 0.6% in recent months, a smaller rise is expected now – 0.3%.
6. Current Account: Published Friday, 9:00. Complementing on the trade balance figure, Europe’s current account will probably show a deficit as well. This deficit has also squeezed from 7.4 to 4.6 billion last time, and is likely to squeeze once again to 3.7 billion.

All times are GMT.

EUR/USD Technical Analysis

The Euro began the week by challenging the 1.2930 line (mentioned in last week’s outlook). After failing to break higher, a sharp drop sent it quickly down, and it continued the week by ranging between 1.2770 and 1.2660, and finally closed at 1.2679.

EUR/USD is now between 1.2660 which held it in the past week and also in the previous week, and 1.2770, that worked as a resistance line at the end of August as well.

Looking up,  the 1.2840 line continues to provide minor resistance after capping the Euro in August. Higher, 1.2930 strengthened its position in the past week, and also successfully held the pair a few weeks ago.

Higher, 1.30 is a round psychological number that is closely watched, and it’s followed by 1.3110, which supported the pair back in May and later worked as resistance. There are more lines above, but they’re too far now.

Looking down below 1.2660, the next line of support is quite close and quite strong – 1.2610 was a resistance line in July, and recently worked as support. Below, 1.2460 stopped the rise back in June and is now a support line.

Lower, 1.2330, the 2008 “Lehman” low is the next minor line of support, and it’s followed by 1.2150, which worked as a strong support line in May through July. The round number of 1.20 is the last significant line.

I remain bearish on the Euro.

As mentioned in previous weeks, the Euro-zone’s problems didn’t really go away. The burden of debt isn’t the problem of “Club-Med” countries alone – it impacts other countries as well via bank lending.

This pair receives excellent reviews on the web:

• James Chen’s strength / weakness meter puts the Euro in the bottom of the list.
• Kathy Lien discusses the big theme of the past week – the stress tests’ backfire.
• Jamie Coleman reports that traders are only willing to push EUR/USD so far.
• Casey Stubbs follows the Euro quite closely.
• Andriy posts technical levels for the EUR/USD and other pairs on a weekly basis.
• TheGeekKnows writes a review of the past week looks forward.

Further reading:

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

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