EUR/USD Outlook May 6-10

EUR/USD had an exciting week, especially around the rate decision, that saw wild action. Mario Draghi will have another opportunity to rck the markets with a scheduled speech and there are quite a few other interesting events.  Here is an outlook for the main events and an updated technical analysis for EUR/USD.

The ECB cut the rates by 0.25% and left the deposit rate unchanged at 0%. This pushed the euro higher. However, during the press conference, Draghi hinted heavily about a negative deposit rate and sent the euro crashing. In the US, the employment report came out better than expected (especially the revisions) and after an initial negative reaction in EUR/USD, the pair enjoyed risk appetite and recovered. We certainly had a nice share of volatility. Will the action continue? Let’s Start

EUR/USD daily graph with support and resistance lines on it. Click to enlarge:

1. Spanish employment data: Monday, 8:00. The number of people registered as unemployed declined by 4,979 in March from 59,400 addition in February, reaching  a total of 5,035,243 unemployed. The decline was mainly in the services sector but was up in construction, agriculture and industry. The Spanish Government imposed steep spending cuts and tax rises, causing further job losses. A gain of 17,100  jobs is forecasted now.
2. Services PMIs: Monday. Italy’s service sector contracted for the 22nd month in March, Efforts to boost growth are at a standstill due to lack of majority in parliament, following February’s national election. Services sector index edged up to 45.5 in March the highest reading in three months, from 43.6 in February, but remaining well below the 50 point line. Meanwhile Spain’s services sector shrank for the 21st month reaching 45.3 in March, up slightly from 44.7 in February and beating forecast for a reading of 44.3, again still a long way from expansion. And the Final value of the euro-zone service sector purchasing managers’ index fell to 46.4 from 47.9 in February, the lowest since October last year. These weak figures indicate the Eurozone still mired in deep recession. Spanish service sector is expected to improve to 45.8, Italy is also expected to increase to 46.3, but the Eurozone service sector is expected to remain at 46.6. Manufacturing PMIs remained depressing.
3. Sentix Investor Confidence: Monday, 9:30. Investor sentiment for the Eurozone declined for the second consecutive month in April, dropped to -17.3 from -10.6 registered in the previous month. The main reason for this fall is the banking crisis in Cyprus. The 1,000 investors surveyed by Sentix in April believed both the economic situation of the Eurozone as well as the economic expectations as clearly weaker than in March. An improvement to -14.6 is forecasted this time.
4. Retail Sales : Monday, 10:00. Euro-zone retail sales decline by 0.3% in February, in line with market forecast. On a yearly base, retail sales declined 1.4% from February 2012. Food, drinks and tobacco sales dropped by 0.1% in February while non-food sector sales fell by 1.1%. The Euro-zone economy experienced five straight quarters of economic contraction ending with Q4 2012, and Markit reported it expects the recession will continue into the first quarter. Another drop of 0.1% is anticipated.
5. Mario Draghi speaks: Monday, 14:00. Mario Draghi  President  if the ECB will be awarded an honorary degree at the Luiss Guido Carli. He will also give a speech, where he may comment about the ECB rate decision held last week. His words cause volatility in the markets. Any talk about negative rates will hurt the euro..
6. French Industrial Production: Tuesday, 7:45. French industrial output increased more than expected in February, rising 0.7% after an upwardly revised 0.8% in the previous month, amid increased production in car and aircraft factories.  France’s economy remains subdued to domestic budget squeeze and weak euro-area demand. President Francois Hollande is trying to boost economic growth but is challenged by his own ministers calling to ease austerity. Analysts believe, France is in recession and will stay there for at least several more months. A contraction of 0.2% is forecast.
7.  German Factory Orders: Tuesday, 11:00. German factory orders edged up well above predictions, rising 2.3% in February, following January’s revised 1.6% drop. Domestic and foreign demand increased, indicating a positive improvement in the first quarter. The current rebound occurred by rising domestic demand from producers of capital goods. A drop of 0.4% is expected now.
8. German Industrial Production: Wednesday, 11:00. German industrial output increased 0.5% in February after a 0.6% fall in the previous month. Industry leaders became more confident about investing in Germany, increasing industrial orders in February. Business leaders believe German economy would accelerate in the second half of this year. A decline of 0.1% is expected.
9. ECB Monthly Bulletin: Thursday, 9:00. The monthly report released in April described the ECB’s outlook following its policy meeting earlier this month. The main points were that the central bank was “ready to act” to boost the recession-hit euro zone economy. Gradual recovery is expected in the second half of this year but is subjected to downside risks
10. German Trade Balance: Friday, 7:00. Germany’s seasonally adjusted trade surplus improved to €17.1 billion in February as a decline in exports was offset by a larger drop in imported goods. Exports declined 1.5% on the month, the first drop since while. Imports fell a sharper 3.8% on the month and are now down 0.9% on 4Q since the start of the year. The unstable export situation means Germany’s own recovery from a weak 4Q remains a bumpy ride. An increase to a surplus of €18.1 billion is forecasted.
11. G7 Meetings: Fri-sat. The G7 meetings hosted by the Chancellor of the Exchequer George Osborne and the Governor of the Bank of England Sir Mervyn King, will meet in the UK and discuss the ongoing debt crisis in Europe and the challenges that face the global economy. The meetings are attended by finance ministers and central bankers from 7 industrialized nations.

*All times are GMT

EUR/USD Technical Analysis

Euro/dollar began the week climbing on top of the 1.3030 line . It then surged higher and even briefly breached the 1.32 line (mentioned last week). On Thursday, it had a huge downfall finding support at 1.3030 once again. More choppy trading saw another challenge of 1.3030.

Live EUR/USD chart:

Technical lines from top to bottom:

1.34 was a stubborn cap during the spring of 2012 and continued its stubborn stance in January 2013 – the line now serves as resistance. These are the head and shoulders lines. 1.3350 was a peak in January 2013 and worked very nicely as support during February. The line is weaker now.

Below, 1.3290 served as resistance before the pair collapsed in 2012, After many failures to break higher, the euro finally pushed through. 1.3255 provided support during January 2013 and also beforehand. A recovery attempt failed to reconquer this line.

1.32 is a clear top after capping the pair twice in April 2012. This is a round number as well. 1.3160, which separated ranges in May 2013 is a critical line, and it now replaces 1.3170.

1.3100 is a minor line after working as temporary resistance in December 2012. It is followed by 1.3030, which proved be strong support in May 2013, defending the round number.

The very round 1.30 line was a tough line of resistance for the September rally. In addition to being a round number, it also served as strong support. It served as a pivotal line of late. 1.2960 provided some support at the beginning of the year and also in September and October – the line is strengthening once again after working as a triple bottom. It remains an important line on the downside.

Lower, 1.2880 worked in both directions during 2012 and was the beginning of the uptrend support line. The recent breakdown turned the line into strong resistance. Lower, 1.2805 was the bottom border of the wide 1.2805-1.3170 that characterized the pair’s trading for a long time.

Below, 1.2750 worked as a separator of ranges during November, and stopped the pair’s drop in March. This is a key line on the downside, as clearly shown in the first week of April. This is followed by the round number of 1.27, which is a minor line.

I am bearish on EUR/USD

The ECB acknowledged the worsening situation and cut the rates. With the hint on negative rates, the pressure on the euro could continue. This joins the various debt-crisis related issues in the old continent.

In the US, the Fed showed little willingness to add more QE, and recent data was certainly a relief: not only does the US continue gaining jobs, the disappointing data seen earlier was significantly revised to the upside.

More technical analysis, just before the recent fall: EUR/USD Reaches Higher on Bullish Correction by James Chen.

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Non-Farm Payrolls: +165K, +155K Expected

The BLS was expected to show a gain of 155K jobs in the US Non-Farm Payrolls report for April 2013. The unemployment rate was expected to stand at 7.6%, which was the level for March (before revisions).

Towards the release, EUR/USD was still digesting the ECB rate decision made yesterday

The Details

• Non-Farm Payrolls: +165K
• Participation Rate:  63.3% (63.3% last month– the worst since 1979)
• Unemployment Rate: 7.5% (last month 7.6% before revisions)
• Revisions: +114K. Last month saw revisions of -61K.
• Private Sector NFP: +73K (Last month:+95K)
• Real Unemployment Rate (U-6): 14.1 (previous: 13.8%) – big fall.
• Employment to population ratio: 58.6%  (previous: 58.6%)
• Average Hourly Earnings: 0.2%% versus +0.2% expected.
• Average workweek: 34.4 hours (Last month: 34.6 hours).

Background

After a good start to the year in terms of economic indicators, the picture has changed, with quite a few disappointments in recent months. Last month’s Non-Farm Payrolls was undoubtedly a weak report, with gains of only 88K jobs. Another significant warning sign came from the initial GDP report: the economy grew at annual pace of  only 2.5% in Q1 2013 – the strong start wasn’t that strong. Contrary to previous reports, this one lacked one of the most leading indicators: the ISM Non-Manufacturing PMI. The services sector is the vast majority of the US economy, and the employment component in this report tends to be well correlated with the NFP.

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Are negative interest rates really possible? Yes is the answer

The dust is still settling after ECB President Mario Draghi shook up the markets this morning at this press conference following the ECB monthly meeting.

At that meeting, the ECB decided to lower interest rates by 25 bps to 0.50%.  Following that announcement at 7:45 AM EST, the EUR actually began to appreciate from the level of 1.3150 to a little above 1.3215.  While most would argue that lowering the rates should have seen the EUR go lower, the move was so expected and “priced in”, that the currency went higher.

But that was just the appetizer!  The main course was still to come.Over the last few months, traders and analysts alike, have marveled at ECB President Mario Draghi’s ability to “talk the EUR higher”, despite continuing bad news regarding the EUR economy.

Over the last few days that bad news has continued, and this morning, Eurozone PMI results results were not good all remaining below the 50 level, indicating the recession continues in the Eurozone.  But, traders had bought the currency after the ECB because certainly President Draghi was going to say something “positive”.

Not so fast my friends!!  This time on top of the rate cut, President Draghi informed us that the bank is technically ready for negative interest rates and actually commented on downside risks affecting the economy.

Mr. “Cheerful” had turned into Mr. “Gloom and Doom”.  Throughout the demise of the European economy, the central bank had kept the deposit rate at zero, in an attempt to discourage banks from just leaving money their money there, hoping this would get the lending market going.  If the central bank moves to a negative interest rate, then that would mean that banks would actually have to pay the ECB for holding their deposits.

This  would certainly help to “stimulate” the lending market.Is this “negative” interest rate scenario possible?  I have no doubt that it is.  Remember, Draghi has said he now has an open mind towards the idea.  That to me means it is inevitable.

Traders will now be wary at the next few ECB meetings to see if they go through with this idea.  Declining economic numbers will now fuel speculation every time there is a “bad” number released.

Just like “FED watchers” look for hints of the ending or lessening of quantitative easing, “ECB watchers” will now be on a negative interest rate watch.As for the currency itself, as, stated earlier, after spiking to a high of 1.3215, the EUR lost over 100 pips in a matter of minutes.  Support levels were crushed before the currency bottomed out at 1.3037.

We have since retraced to the 1.3070 area.  It is hard to say how they market “feels” at the moment.  Tomorrow’s US non-farm payroll release will have a huge impact on the currency market, more than it usually does.  A “good” number would fuel this USD resurgence.  At the moment, the forecast is for an increase in jobs of 150,000 for April after a 88,000 job hike in March.

Keep in mind the March number was woefully below the expected number and was the beginning of the dollar down, EUR up move.

See how to trade the Non-Farm Payrolls with EUR/USD.

Tomorrow could do a lot to continue reversing that trend.  Or, as has happened in the past, the expectation is so far off, that the number disappoints and the EUR is back at 1.3200 in a blink of an eye.

Needless to say this will be a nervous overnight trading session ahead of tomorrow’s release.Technically, support remains at 1.3030, followed by the psychological level at 1.3000.  I don’t expect to see that happen this afternoon and don’t expect too much of a trading range tonight.

The break of 1.3000 accelerates the move towards 1.2955.  On the topside, we would need to see a close above 1.3155 to negate the negative feelings.  I don’t expect that either.So, we’ll rest up and wait for 8:30 tomorrow morning.  I have my normal morning report before that.

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Forex - Weekly outlook: May 6 - 10

The dollar rallied more than 1% against the yen on Friday after official data showed that the U.S. economy added more jobs than expected in April, easing concerns over a slowdown in economic growth.

The U.S. Department of Labor said the economy added 165,000 jobs in April, above expectations for an increase of 145,000, while job increases for the previous month were revised up to 138,000. 

The U.S. unemployment rate unexpectedly fell to a four-month low of 7.5% from 7.6% in March.

The dollar jumped against the yen following the data, with USD/JPYhitting session highs of 99.27 before settling at 99.03, 1.10% higher for the day and up 1.16% on the week.

The dollar trimmed gains after a report by the Institute of Supply Management showed that the U.S. service sector expanded at the slowest pace in nine months in April. 

The ISM non-manufacturing purchasing managers’ index fell to 53.1 from 54.4 in March, below expectations for a reading of 54.0.

A separate report showed that U.S. factory orders fell 4.0% in March, more than expectations for a 2.6% decline.

On Wednesday, the Federal Reserve recommitted to its USD85 billion a month asset purchase program and indicated that it could increase or decrease the monthly amount, depending on the outlook for inflation and employment.

The dollar was lower against the euro, with EUR/USD rising to highs of 1.3159, before settling at 1.3119, up 0.42% for the day and 0.19% higher for the week.

The euro remained under pressure after the European Central Bank cut interest rates to 0.5% from 0.75% on Thursday amid concerns over the deteriorating economic outlook for the euro zone.

Earlier in the week data showed that unemployment in the bloc rose to a record 12.1% in March, while inflation dropped to 1.2% in April.

The euro fell sharply on Thursday after ECB President Mario Draghi said the bank has an “open mind” on a negative deposit rate for banks. The deposit rate is the rate paid by the ECB on overnight deposits by euro zone banks.

The euro was sharply higher against the yen on Friday, with EUR/JPYjumping to session highs of 130.34, before settling at 129.93, 1.53% higher for the day and up 1.35% for the week.

In the week ahead, investors will be watching interest rate decisions by the Reserve Bank of Australia and the Bank of England. The euro zone is to release data on retail sales, while Germany is to publish official data on industrial output and factory orders. Elsewhere, China is to release closely watched government data on inflation.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, May 6

Markets in Japan are to remain closed for a national holiday.

Australia is to produce official data on retail sales, the government measure of consumer spending, which accounts for the majority of overall economic activity.

The euro zone is to produce official data on retail sales. Spain is to release government data on the change in the number of people unemployed, while Spain and Italy are to release data on service sector activity.

ECB President Mario Draghi is to speak at an even in Rome; his comments will be closely watched.

Markets in the U.K. are to be closed for the May Day holiday.

Canada is to release official data on building permits as well as a report on the Ivey PMI, a leading economic indicator.

Tuesday, May 7

The RBA is to announce its benchmark interest rate. The rate announcement is to be accompanied by the bank’s rate statement, which contains important insights into current and future economic conditions from the bank’s perspective. 

Australia is also to publish official data on the trade balance and house price inflation.

New Zealand is to release data on labor costs, a leading indicator of consumer inflation.

The Swiss National Bank is to release data on foreign currency reserves, which gives a valuable insight into the scale of the bank’s currency market operations.

Switzerland is also to publish its SECO index of consumer climate and government data on the unemployment rate. 

In the euro zone, Germany is to release official data on factory orders, while France is to produce data on industrial production.

Wednesday, May 8

The Reserve Bank of New Zealand is to publish its bi-annual financial stability report.

The U.K. is to release private sector data on retail sales, an important economic indicator.

Switzerland is to release official data on consumer price inflation, which accounts for the majority of overall inflation.

In the euro zone, Germany is to produce official data on industrial production, while markets in France are to remain closed for a national holiday.

Thursday, May 9

Both Australia and New Zealand are to release government data on the change in the number of people employed and the unemployment rate, a leading economic indicator.

China is to release official data on consumer price inflation, which accounts for the majority of overall inflation.

Markets in France, Germany and Switzerland are to remain closed for national holidays.

Meanwhile, the ECB is to publish its monthly bulletin, while Spain is to hold an auction of 10-year government bonds.

The U.K. is to release official data on manufacturing and industrial production, leading indicators of economic health. In addition, the BoE is to announce its benchmark interest rate.

Later Thursday, Canada is to release official data on new house price inflation.

The U.S. is to publish the weekly government report on initial jobless claims.

Friday, May 10

The RBA is to publish its monetary policy statement, which outlines the factors that influenced the bank’s rate decision.

Japan is to publish official data on the current account.

The U.K. is to release government data on the trade balance.

Canada is to release government data on the change in the number of people employed and the unemployment rate, a leading economic indicator.

The U.S. is to round up the week with data on the federal budget balance.

Also Friday, finance ministers and central bank heads from the Group of Seven nations are to hold the first day of a two day summit meeting.

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Forex Trading Signal for 6 May 2013

                                                                                


Japan (Tokyo)                               United Kingdon (London)                        USA (New York)

For more easy access,,,,,,Download our mobile application on your mobile :   Click Fxsignals 

EUR/USD

UP Trend : BUY

 (1) BUY

E/P: 1.31056

T/P: 1.31356

S/L: 1.30700

 

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GBP/USD

UP Trend: BUY

(1) BUY

E/P: 1.55553

T/P: 1.55853

S/L: 1.55253


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