EUR/USD made a move to the upside but could not go very far as the dovish tone still prevailed. He has another public appearance this week. An important German survey and final inflation numbers stand out in the upcoming week. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.
The ECB left all policy measures unchanged and did not provide any details about changes to the span or the mechanics of the QE program. Despite the dearth of details, Draghi’s message was dovish, and the euro was unable to run higher. This came in a week that saw the greenback on the back foot, with yet another disappointing number.
- German CPI (final): Tuesday, 6:00. According to the initial read, prices in Germany remained flat in August. This disappointing read added to pressure on the ECB. Germany is expected to confirm the data now.
- Mario Draghi speaks: Tuesday, 9:00. After a long summer of silence, Draghi speaks again for the second time in less than a week. The President of the ECB in Trento and could guide provide further clarity or at least a direction of travel. His words are always closely monitored.
- German ZEW Economic Sentiment: Tuesday, 9:00. The ZEW institute releases its business sentiment early in the month. After a big fall in July due to Brexit, the indicator went back to positive territory, albeit at only 0.5 points, below expectations, in August. The figure for September could be higher.
- Employment Change: Tuesday, 9:00. The quarterly gauge of euro-zone employment is quite lagging, yet provides a wider outlook on conditions. A rise of 0.3% was printed for Q1. A more moderate advance is on the cards now.
- French Final CPI: Wednesday, 6:45. The continent’s second-largest economy saw prices rise by 0.3% in August. This will likely be confirmed now.
- Industrial Production: Wednesday, 9:00. Industrial output expanded by 0.6% in back in June. July has probably been worse. Germany’s numbers are already out and they fell below projections.
- Final CPI: Thursday, 9:00. The flash inflation CPI data missed expectations, with 0.2% on the headline number and 0.9% on core inflation. This raised expectations from the ECB. Markets expect a confirmation of the data, but surprises are not uncommon.
- Trade Balance: Thursday, 9:00. The euro-area enjoys a wide trade surplus, fueled in large by German exports. After 23.4 billion in June, a similar positive figure is predicted.
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar began the week under the 1.1190 cap. It then advanced and even topped 1.13 before grinding back down.
Technical lines from top to bottom:
1.1535 is a stepping stone as seen in May 2016 and also beforehand. It is followed by the very round level of 1.15.
1.1460 was a key resistance line in 2015 and 1000 above the multi-year lows. 1.1410 capped the pair in early June. 1.1375 worked as resistance in February and as support in May 2016.
1.1335 worked as the bottom bound of a higher range and then capped recovery attempts in May. 1.1230 capped the pair after the fall in May and worked as resistance.
1.1190 is the post-Brexit high seen in July. 1.1125 cushioned the pair in early September. 1.1070 served as a clear separator of ranges during February and also beforehand.
1.10 is a round number and significant resistance. 1.0905 is the swing low seen in June and serves as a weak support. 1.0825 worked as support in early March 2015 and should also be watched. This is now a triple bottom.
The post-Draghi low 1.0780 replaces 1.08 as support. 1.0710 is the next support line on the chart after temporarily capping the pair in April 2015.
Further below, the 2016 low of 1.0520 and the 2015 low of 1.0460 provide further support.
I remain bearish on EUR/USD
The European Central Bank is far from achieving its goals and keeping the pressure on the euro is essential to getting closer to higher inflation. Acting now may be premature, but hinting of an upcoming move could serve to tilt to the euro down. Even if the Fed is unsure about the timing of the next move, the direction is clear: a rate hike.