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I believe that the support is now located at the level of 1.1121, Wednesday's low and resistance will be at the level of 1.1208 - Monday's high.
Yesterday the EURUSD initially fell but yet again found enough support at the 50-day moving average to trim all its losses and closed near the high of the day, in addition managed to close above the previous day high, which suggests a strong bullish momentum.
The pair is trading below the 10-day moving average that is acting as a dynamic resistance and is trading above the 50 and 200-day moving averages that are acting as dynamic support.
The key levels to watch are: a daily resistance at 1.1237, the 10-day moving average at 1.1224 (resistance), the 200-day moving average at 1.1172 (resistance), the 50-day moving average at 1.1135 (support) and a daily support at 1.1097.
EUR/USD showed strongest performance for the the three weeks. The euro added around 40 pips to closing price of 1.1196. Anyway breaking 1.1235 would confirm the dominance of the bulls. Support is een at 1.1105 and resistance is located at 1.1235.
EUR/USD forecast for the week of September 5, 2016
The EUR/USD pair went back and forth during the course of the week, as we continue to meander around the 1.12 handle. This is clearly a market that is a bit confused, and therefore I don’t have any interest in trading the Euro from a longer-term perspective at this point in time. Ultimately, the 1.10 level below will be the support, and the 1.1350 level above will be resistive. In other words, it’s very difficult to trade this from the longer-term perspective at this point, and I will have to go to shorter-term charts in order to range trade.
EUR/USD Weekly Outlook September 5-September 9
When the dust settled after the volatility surrounding the release of the weaker than expected U.S. Jobs report, EUR/USD was lower on the day, off 0.39% and at the lows of the session. For the week overall, the pair was down roughly the same amount. The pair established a floor on Wednesday at 1.11231, after starting off the week with a continued slide on dollar strength in the wake of comments from Federal Reserve officials on August 26th. The pair then rebounded in an effort to work off the resulting oversold condition, but failed to sustain an upside bias on Friday. The reaction to Friday’s release of nonfarm payrolls was all over the map, as the weaker than expected report initially spark a sharp spike up to the 1.2521 level as the dollar plummeted. However, the euro’s gain was soon reversed as the U.S. dollar rebounded, despite the fact the jobs data was well below expectations at +151K, falling short of the 180K estimate. The 151K reading failed to provide convincing evidence that the Federal Reserve will increase rates in the U.S. later this month. The next meeting of the Fed is scheduled for Sept. 20-21. However, some believe the data was strong enough to support a rate hike before the end of the year, thereby resulting the dollar’s recovery following the initial drop.
Friday’s failed rally attempt in EUR/USD and subsequent downside follow through reversed the gains posted on Thursday, when the dollar fell sharply in reaction to a surprise read on U.S. manufacturing data. U.S. ISM Manufacturing missed estimates, coming in at 49.4 versus a forecast of 52 and a previous reading of 52.6 in July. The slip back into contraction mode with a reading below 50 is a negative for third quarter GDP growth prospects. At the close on Friday, EUR/USD was back below its 100-day moving average and appears vulnerable to at least a return to the 1.1123 level in early trading next week.
The most widely watched event for the Eurozone next week will be the European Central Bank’s monetary policy announcement on Thursday. The ECB still faces major challenges, but is not likely to push forward on easier policy at this meeting, despite recent data showing weakness in Eurozone prices. Inflation remains well below target with year-over-year core CPI growth falling to 0.8% from 0.9% in August. In addition, while the U.K.’s Manufacturing PMI Survey blew away expectations, the final reading of the Eurozone PMI manufacturing index released at the same time was revised down to a 3-month low of 51.7 from the flash reading of 51.8. Expectations were that the rate would hold at 51.8 following a reading of 52 in July. France and Italy’s readings for Final August Markit Manufacturing PMI were both below 50, with the Italian manufacturing sector moving into contraction, with a reading of 49.8 from 51.2, the lowest reading in 20 months. Thus, the ECB press conference could be a market moving event, despite the fact no change in monetary policy is expected.
Ahead of the ECB, Eurozone retail sales for July is set for release on Monday. Sales are expected to rise by 0.6% MoM from 0%, and 1.8% YoY from 1.6%. Eurozone GDP (Q2, third estimate) is due out Tuesday and the QoQ rate is expected to be revised to 0.3% from 0.6%, while the YoY figure falls to 1.6% from 1.7%. German trade balance for July comes at the end of the week, on Friday. The surplus is expected to fall to 20.7 billion from 24.9 billion.
On a further move lower in EUR/USD, a drop below first support at 1.11231, which is in the same vicinity as the 50-day moving average, could elicit more selling, resulting in a decline below 1.1100 with follow through to test the August 5th corrective bottom at 1.10460. Already taken out as a result of Friday’s sell-off was the falling trendline defined by the early-May and June pre-Brexit highs. Failing to hold this trendline as support is a negative sign calling for a further decline.
On the upside, the 100-day moving average was pierced on an intraday basis Friday, but the move was not sustained. Thus, this moving average could still have resistance value on another rebound attempt, which is a possibility on a short term basis as the pair remains oversold. This moving average currently stands at the 1.1214 level. Next resistance is Friday’s high at 1.12521, which represents a 50% retracement of the decline from the August peak. The 61.8% retracement is at the 1.1275 level.
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Britain urged to speed up Brexit by ex-head of European central bank
Britain needs to speed up its exit from the EU, the former head of the European central bank has insisted.
The UK needed to accept the four pillars of the single market, including free movement of labour, if it wanted to remain in the trading area after withdrawal, said Jean Claude Trichet.
"We know in advance that we have quite a long period of uncertainty and I would call for that period to be as short as possible, and for the position of the British government to be as clear as possible, as soon as possible," he told the BBC.
Former Irish prime minister, and ex-EU ambassador to the US, John Bruton also criticised London's failure to prepare for Brexit.
"I think there is a lot of surprise in other European countries that the government, which decided in its manifesto that it would have a referendum, hadn't prepared in advance what it would look for once it left, given that there was always going to be a possibility that was going to be the result.
"One would have thought they would have prepared in the event that the people voted to leave," he told the BBC.
Former Italian prime minister Mario Monti warned that giving Britain a "full Monty" deal without free movement of labour could destroy the single market as other nations demanded special treatment in certain areas as well.
The rebukes came as Theresa Villiers said it is "crucial" that the border between Northern Ireland and the Republic remains open and unfortified.
The former Northern Ireland secretary, who quit front bench politics after declining Theresa May's offer of another Government position, said there was a reasonable chance of keeping the crossing between the two countries open despite the Brexit vote.
Ms Villiers told the Murnaghan programme on Sky News that there had never been a "truly hard border" and that softer measures could be taken to combat illegal migration.
"What has encouraged me since the referendum result is that we have the new Prime Minister, the Brexit secretary, we have the Taoiseach in Ireland all saying we need to keep this border open - it is crucial.
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Germany: Another Shot Across the Bow
Yesterday’s regional elections in the state of Mecklenburg-Vorpommern were another shot across the bow for the national government and chancellor Angela Merkel. According to the latest vote counts, all so-called established parties except for the AfD lost votes. The Social Democrats (SPD) remained the strongest party in the state with about 30% of the vote. At the same time, the AfD for the first time ever gained more votes in a state than chancellor Merkel’s CDU (21% vs 19%).
Mecklenburg-Vorpommern has around 1.3 million voters, has the highest youth unemployment rate of all German states, has a high poverty rate and the extreme right wing party, NPD, has been member of the regional parliament for ten years. Therefore, yesterday’s results are obviously not representative but they definitely are symbolic for chancellor Merkel and the entire German landscape.
The refugee crisis is damaging chancellor Merkel’s popularity; not only in the German population but also within the own government coalition. The Bavarian sister party, the CDU, is not getting tired in criticizing Merkel. Latest regional elections have to a large extent been used as a protest vote and have been significantly affected by national and not regional politics. Since 2014, the AfD has made it into nine out of 16 regional parliaments. It looks as if the AfD has become more than a protest party that only finds support in the Eastern part of Germany. The big test case ahead of the national elections will be next year’s elections in North Rhine Westphalia, a state which has more voters than all Eastern German states together.
Last night’s elections will in our view not change chancellor Merkel’s stance on the refugees or the economy but the atmosphere in her own government and party will become rougher.
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