Euro gained back more than 1% last week. In the first part of the week Euro recovered some of the lost ground from two weeks ago, even though the economic data released for the Euro Area wasn’t that good. The services PMIs were mostly under expectations, the Spanish unemployment was higher and German factory orders dropped with 0.5%.
The trigger of the rally was actually the fact that the ECB maintained the interest rate. The upside move continued during the press conference when Mario Draghi, the ECB’s president, was pretty optimist in what concerns the economy’s recovery.
The US Non-Farm Payrolls was for a second month under expectations. But the unemployment rate dropped to 6.6%, which could be an important argument for the Fed to continue the QE tapering during next months. Continue reading this article to see what the most important events are and what our forecast for this currency pair is, on short and medium term.
French Industrial Production – Monday (07:45 GMT). From September 2013 to the end of the year the French industrial production has disappointed investors because of the low readings. None of the last four months, of last year, exceeded analysts’ expectations. In January it was forecasted a 0.6% growth, but it actually gained 1.3%. This month it is expected to drop with 0.1%.
Italian Industrial Production – Monday (09:00 GMT). This indicator didn’t surprise the market in the first month of 2014. It gained only 0.3% even though the expectations were of 0.6%. Tomorrow it is expected to remain unchanged. Even though it isn’t a big impact indicator it could trigger some volatility if the surprise will be big.
Sentix Investos Confidence – Monday (09:30 GMT). This is an indicator which shows the level of diffusion index based on surveyed investors and analysts. In January it exceeded expectations by 2.2 points. Next week it is expected to be 10.3.
European Industrial Production – Wednesday (10:00 GMT). In December the European Industrial Production dropped by 1.1%. On month later, in January 2014, it gained 1.8%, with 0.2% better than analysts expected. On Wednesday the change in the total inflation-adjusted value of output produced by manufacturers, mines and utilities is expected to be -0.2%.
Mario Draghi Speaks – Wednesday (15:30 GMT). The ECB president is due to speak at the European Monetary Institute’s “Progress through Crisis” Conference organized by the European Central Bank and National Bank of Belgium, in Brussels.
ECB Monthly Bulletin – Thursday (09:00 GMT). It is released monthly, 7 days after the Minimum Bid Rate release and it reveals the statistical data that the ECB Governing Board evaluated when making the latest interest rate decision.
German Prelim GDP q/q – Friday (07:00 GMT). In August last year the German GDP has risen with 0.7% and in November with 0.3%. This month it is expected another 0.3% growth. A positive surprise could trigger another rally for the euro.
European Flash GDP q/q – Friday (10:00 GMT). Last year 3 out of 4 release were below estimates. In November the European GDP rose with 0.1% and for this week it is forecast to gain 0.2%. In the last ECB press conference Mario Draghi said that the GDP gave some good signals. We will not be that surprised to see a better than expected release.
For the upcoming week the most important economic indicators for the Euro Zone are the GDP and the Industrial production. Good publishing could keep the single currency on the uptrend. As we learned until now, a good forecast cannot be done only by looking at the Euro Area economic data. Important inputs come also from the United States so let’s take a look at the economic calendar for it.
Tuesday: FOMC Member Plosser Speaks; Fed Chair Yellen Testifies; JOLTS Job Opening – Exp. 4.04;
Wednesday: 10-y Bond Auction; Federal Budget Balance – Exp. 28.2B;
Thursday: Core/Retail Sales; Unemployment Claims – Exp. 331k; Fed Chair Yellen Testifies; Business Inventories m/m – Exp. 0.4%;
Friday: Import Prices – Exp. -0.1%; Capacity Utilization Rate – Exp. 79.4%; Industrial Production – Exp. 0.2%; Prelim UoM Consumer Sentiment – Exp. 80.6.
Support: 1.3500, 1.3400;
Resistance: 1.3700; 1.3800;
The price of the EUR/USD was rejected from 1.3475. Now the price got back at the down trend line where it could find some resistance, especially from 1.3650. A break above the trend line, drawn with orange, could mean that investors are trying to push Euro higher, targeting the resistance from 1.3700 or 1.3800.
Support: 1.3581, 1.3506, 1.3477;
Resistance: 1.3639, 1.3700, 1.2730;
On a lower time frame we can see pretty clear how the Euro rallied last week. After a new weekly high touched on Thursday during the ECB press conference, another rally took place on Friday after the NFP release. The price hit a good local resistance at 1.3639, which was a level mentioned in our past analysis. We can assume that the uptrend could continue if the earlier mentioned resistance will be broken. Next target are 1.3700 and 1.3730.
Bullish or Bearish
Taking into consideration the new price action I would say that my view on the medium changed from bullish USD to a range move. On a lower time frame I believe that 1.3600 could be retested before another important rally. On short term I also change my view to longs, since the interest rate remained unchanged and the confidence has risen towards the Euro Area.