EUR/USD Forecast August 19-23

EUR/USD managed to recover from a dip lower and remain on high ground. What is the next move for the pair? Flash manufacturing and services PMIs, and German Producer price index are the main events on our calendar. Here are the market movers for the coming week and an updated technical analysis for EUR/USD.

Gross domestic product of the Euro area increased for the first time since the third quarter of 2011, rising 0.3% in the second quarter. The positive release indicates the region is out of recession. Germany and France rebounded strongly and a substantial improvement was shown in Italy and Spain. Germany grew by 0.7% following a small rise of 0.1% in the first quarter and France exited its recession and with a bang, jumping 0.5% in the second quarter. Further good news came from German ZEW Economic Sentiment rising to 42 points from 36.3 in June. These encouraging figures clearly show recession is over however the Euro-zone is not out of the woods yet. In the US, key employment and inflation figures were good and supported tapering in September, but this wasn’t enough for the greenback.

Updates:

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

1. German PPI: Tuesday, 6:00. German Producer price index remained unchanged in June, after a 0.3% fall in May, but came in higher than the 0.25 decline forecast. On annual bases, prices grew 0.6% following a 0.2% increase in May. A gain of 0.2%  is forecast this time.
2.  Flash Manufacturing and Services PMIs: Tuesday.  Euro zone private industry unexpectedly gained traction in July with positive data across the board, indicating recovery may be underway. The flash manufacturing PMI crossed the 50 point line for the first time in two years, coming in at 50.1, beating forecasts for a 49.1 reading and higher than June’s 48.8. Meanwhile PMI for the service sector soared to 49.6 from 48.3 in May, approaching expansion. German business activity soared to a 5 month high with a rise to 52.5 in the service sector, following 50.4 in the previous month, while manufacturing was also higher at 50.3 in July, compared with 48.6 a month earlier.  In France business slump has moderated with a rise to 49.8 in the manufacturing sector, compared to 48.4 in June and an improvement to 48.3 in the service sector following 47.2 in June. Economists forecast another improvement in the PMIs:  French Manufacturing 50.4, French  services 49.3, German Manufacturing 51.1, German services 51.7, Eurozone Manufacturing 50.9, Eurozone Services 50.2.
3. German Final GDP: Friday, 6:00. German private consumption boosted growth by 0.1% in the first quarter, following the same rise in the final quarter of 2012. Rising wages also contributed to the increase in spending. Germany is outperforming other euro zone countries, and recent data showed its industrial output and orders, as well as imports and exports, rose in March. A further expansion of 0.7% is expected now.
4. Belgium NBB Business Climate: Friday, 13:00. Belgian business confidence, edged up slightly in July, better than the -11.2 forecast, following -12.8 in the previous month. The index was stuck in a range between -11 and -15 for the past 12 months, indicating economic sluggishness.  A slight improvement to -11.1 is projected.
5. Consumer Confidence: Friday, 14:00. Consumer climate in the euro zone advanced more than expected in July, rising to -17, its highest level in almost two years, from -19 in the previous month. Sentiment was much improved thanks to better manufacturing data, suggesting recovery in the second half of the year. No change is expected.

*All times are GMT

EUR/USD Technical Analysis

Euro/dollar began the week with a drop to find support at 1.3280, a line that joins the chart and didn’t appear last week. It then fell further but quickly leaped back up. The pair was unable to hold onto high ground and eventually ends the week just marginally higher.

Technical lines from top to bottom:

1.37 was the 2013 peak, and is still far. 1.3590 capped EUR/USD back in February and is minor resistance.

1.3520 was a swing high in February, before the pair tumbled down. 1.3480 was part of a head and shoulders pattern seen in January and February.

1.3415 was the peak back in June and serves as a strong line of resistance. Beyond this line, it’s a 6 month high. 1.3350 provided support when the pair traded higher in February and weakens now.

1.3280 worked as a good separator of ranges in August 2013 and is now an important line on the downside. It is followed by 1.3240, which capped the pair in April and also had a role in August.

1.3175 capped the pair during July 2013 and works as another line of defense for any moves to the downside. It proved its strength during July 2013 . 1.3100 is worked as temporary resistance in December 2012 and is becoming more important once again, after capping a recovery attempt in June and then in July.

It is followed by 1.3050, which proved be strong support in May 2013, defending the round number in more than one occasion, but it is less significant now.

The very round 1.30 line was a tough line of resistance. In addition to being a round number, it also served as strong support and recently worked as a pivot line. 1.2940 is the next line of support. It worked as such during April and May 2013.

Lower, 1.2890 worked in both directions during 2012 and was the beginning of the uptrend support line. It is becoming more important, as a clear separator of ranges. 1.2840 worked as a cushion for the pair during May 2013.

Uptrend support

Since mid July the pair trading along an uptrend support line, which it touched three times (black line). It is also interesting to note lower highs since the peak of 1.3415 in June.

I turn from neutral to bearish on EUR/USD

While the euro-zone returned to growth, the region is far from being out of the woods and there are concerns coming from everywhere (here are 4 reasons). Until the German elections, Merkel will probablycontinue ignoring the need for another Greek haircut.

In the US, not everything is rosy, but employment continues improving and inflation isn’t getting in the way. Currently a “Septaper” is a close call for the Fed and the markets. Will markets begin pricing it in after the FOMC meeting minutes?

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Forex Weekly Outlook August 19-23

Currencies provided quite a few volatile moments in the normally quiet midsummer weeks, but there was no clear direction and the QE tapering remains open. US housing data, the FOMC Meeting Minutes and Unemployment Claims are the highlights of this week. Here are the main market-movers on our calendar.

Weekly jobless claims reached a new multi year low of320K, beating market predictions. The big fall indicates increased hiring in early August. Also solid inflation numbers support a “Septaper”. However, not all figures were great and the greenback didn’t always react as expected. On the other side of the Atlantic, the pound received more excellent news and the euro-zone exited its recession, even though doubts remain. Let’s start.

1. US Existing Home Sales: Wednesday, 14:00. Previously owned home sales unexpectedly declined 1.2% to 5.08 million units in June, following two straight months of sharp increases, Economists expected the number to reach 5.27 million. However the surge in house prices indicates the market recovery remained on course. A rise to 5.51 million is expected this time.
2.  US FOMC Meeting Minutes: Wednesday, 18:00. In the recent meeting, the FOMC left policy unchanged and made very minor changes to the statement, mostly in inflation. As economic data isn’t that different than at the time of the meeting, getting a peek into the internal discussions will certainly shed light on markets and will likely have a strong impact on markets.
3. Chinese HSBC Manufacturing PMI: Thursday, 1:45. This independent survey is considered one of the best indicators for the world’s No. 2 economy. The recent figure was quite worrying: a drop to 47.7, which reflects not-so-mild contraction. A small recovery to 48.3 is expected. This has implications on the Australian dollar and the Japanese yen, as well as other currencies.
4. US Unemployment Claims: Thursday, 12:30. US jobless claims fell nicely to 320K, following  335K in the previous week. This data was 14K lower than predicted by analysts, indicating the job market recovery is picking up. The four-week moving average for new claims, , fell 4,000 to 332,000, the lowest level since November 2007.  A small increase to 322,000 is projected.
5. UK GDP (second release): Friday, 8:30. The first release of GDP for Q2 showed strong growth of 0.6%, and since then almost all British economic indicators shined. This figure is expected to be confirmed now, giving a boost to GBP, especially as Carney’s forward guidance is already out, and doesn’t scare the markets too much.
6. Canadian inflation data: Friday, 12:30. Consumer prices were a little weaker than expected in June. CPI remained unchanged following the 0.2% gain in May. However the annual inflation increased 0.5% to 1.2%. Meanwhile core CPI excluding food and energy, declined 0.2% in June after a 0.2% increase in the previous month. Inflation in Canada is subdued for a period of fourteen months, situated below the 2.0% BOC target.  CPI is expected to rise 0.2% while core CPi is predicted to climb  0.1% .
7.  US New Home Sales: Friday, 14:00. The annualized number of new home sales in the US soared in June to a five-year high of 497,000 units, following 459,000 in the preceding month. Together with other encouraging data from the industrial sectors, hopes are up for a third-quarter pick-up in economic growth. The recent climb in mortgage rates had no effect on rising demand. A small decline to 492,000 is expected.

That’s it for the major events this week. Stay tuned for coverage on specific currencies

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U.S. stocks dip in listless trading, await fresh Fed cue; Dow down 0.20%

U.S. stocks fell in lackluster trading on Friday as investors digested mixed economic indicators on the sidelines while awaiting fresh clues from the Federal Reserve as to when stimulus measures will begin scaling back.

Stimulus measures tend to inflate stock prices by keeping interest rates low.

At the close of U.S. trading, the Dow Jones Industrial Average finished down 0.20%, the S&P 500 index fell 0.33%, while the Nasdaq Composite index fell 0.09%.

Mixed economic indicators repelled many investors from stocks on Friday, especially after consumer sentiment data missed market expectations.

The Thomson Reuters/University of Michigan's preliminary consumer sentiment index fell to 80.0 in August from 85.1 in July. Analysts were expecting the index to rise to 85.5 this month, and the numbers edged stock prices lower as consumer spending drives about 70% of the U.S. economy. 

Elsewhere, the Commerce Department reported earlier that U.S. building permits rose 2.7% to 943,000 units in July, disappointing expectations for an increase of 2.9% to 945,000 units although June's figure was revised up to 918,000 units from 911,000. 

The government added that housing starts rose 5.9% to 896,000 units in July, missing expectations for a 8.3% increase to 900,000 units. Still, June's figure was revised up to 846,000 units from 836,000. 

Not all U.S. data missed expectations.

The Bureau of Labor Statistics said in a preliminary report that nonfarm productivity rose 0.9% in the second quarter, beating expectations for a 0.6% gain after a 1.7% decline in the previous quarter. 

Trading was quiet.

While the day's data painted a picture of an economy that is improving, though doubts remained in equities markets as to when the Federal Reserve will begin tapering stimulus measures, especially its USD85 billion bond-buying program that pushes up stock prices arguably by design.

Leading Dow Jones Industrial Average performers included Hewlett-Packard, up 1.85%, Boeing, up 0.73%, and Bank of America, up 0.70%.

The Dow Jones Industrial Average's worst performers included Verizon, down 1.65%, Pfizer, down 1.46%, and Cisco, down 0.82%.

European indices, meanwhile, finished higher.

After the close of European trade, the EURO STOXX 50 rose 0.57%, France's CAC 40 rose 0.75%, while Germany's DAX 30 finished up 0.19%. Meanwhile, in the U.K. the FTSE 100 finished up 0.26%.

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