EUR/USD Forecast 14-18 Dec.

EUR/USD was looking for a new direction after the ECB excitement and eventually advanced once again. In the last full week before the holiday season, we have important German surveys, PMIs and inflation. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.

German industrial output missed expectations and so did the Sentix Investor Confidence. Draghi’s damage control had a limited effect even though inflation doesn’t look really upbeat. The euro enjoyed safe haven flows as commodities and stocks tumbled down, with oil prices leading the plunge. In the US, data was OK towards the all important Fed decision.  The picture could be totally different by the end of the week

Updates:

1. Industrial Production: Monday, 10:00. While the parallel figures have already been released for Germany and France, this publication still tends to surprise. Output dropped by 0.3% in September. A rise of 0.3% is on the cards this time.
2. Mario Draghi talks: Monday, 11:00. The president of the ECB will speak in his home country of Italy and could try to talk down the euro once again by promising further action if needed, preempting the Fed action later in the week. His attempts to explain the recent policy and control the damage of his disappointment had partial success.
3. German ZEW Economic Sentiment: Tuesday, 10:00. After long months of drops, business sentiment bounced from the lows and escaped negative ground. A rise to 15.2 points is expected now for this indicator. A score of 10.4 was seen in November for Germany. The all euro-zone number stood on 28.3 points and is expected to rise to 34.4 points.
4. Employment Change: Tuesday, 10:00. This quarterly measure provides another insight on the labor market. After a rise of 0.3% in Q2, another edging up is predicted for Q3, following the drops in the unemployment rate. A rise of 0.2% is on the cards now.
5. Flash PMIs: Wednesday, France at 8:00, Germany at 8:30 and the whole euro-zone at 9:00. These forward looking indices are released by Markit of the month of December – preliminary indicators. In November, France saw 50.6 points in the manufacturing sector, only hardly above the 50 point threshold separating growth and contraction. The same score is expected now. The services sector stood on 51 points and a slide to 50.7 is predicted. Germany enjoyed 52.9 in manufacturing (perhaps the most important single indicator out of all 6) and it is now expected to move to 52.7 points. German services stood on 55.6 points and a similar number of 55.5 is on the cards now.. For the whole euro-zone, the numbers were 52.8 and 54.2 for manufacturing and services respectively with 52.8 and 54 predicted now.
6. Inflation data: Wednesday, 9:00. The initial releases for November were disappointing: headline inflation advanced by only 0.1% y/y and core inflation re-weakened to 0.9%. Will the final numbers reveal an improved situation? Expectations are for a confirmation, even though French numbers imply a potential slide.
7. Trade Balance: Wednesday, 10:00. Germany’s surplus is at the basis of the all-European surplus. In September, this wide surplus stood on 20.1 billion, keeping the euro bid. 22.3 billion is likely now.
8. German Ifo Business Climate: Thursday, 9:00. IFO is Germany’s No. 1 Think Tank. Despite having the figure published after the ZEW one, this one is no less important. A score of 109 was seen for November, better than expected. Another advance to 109.2 is predicted.
9. ECB Economic Bulletin: Thursday, 9:00. Two weeks after the rate decision, we will get to understand what led Draghi to act, but not act too much, at least based on only slightly weaker forecasts.
10. Current Account: Friday, 9:00 .Similar to the trade balance measure, the euro-zone’s current account is positive. In September it stood on a super-strong 29.4 billion

EUR/USD Technical Analysis

Euro/dollar was testing the 1.0830 level. From there it shot higher, almost reaching 1.1050 before chopping around and settling at 1.0976.

Technical lines from top to bottom:

1.13 worked as support back in October and is the high line at the moment. It is followed by the swing low of 1.1220 in September which is minor resistance now.

1.1140 cushioned the pair in October. 1.1050 is the high seen in December and the next challenge on the upside.

1.10 is a round number and significant resistance. 1.0925, which was a support line in December, is the next support line.

1.0830 was a post slide high seen in November and also a range separator..The next line is 1.0790, a minor line in the range.

1.0710 is the next support line on the chart after temporarily capping the pair in April 2015. 1.0630 worked as nice support in November 2015 and then switched to resistance.

It is the last line before plunging to 1.0530, that supported the pair in April. Below, the 12 year low of 1.0460 seen in March.

I am bearish on EUR/USD

Draghi did his best to do some damage control. So far, his success is partial but more may come. And in the US, we’ll have the historic rate hike. It may eventually turn into a “buy the rumor, sell the fact” for the dollar, but not now.