EUR/USD Forecast December 2-6

EUR/USD advanced for a third week in a row. As we enter the last month of the year, can it reach new highs? The rate decision is the key event of the week. Here is an outlook for these events among others, and an updated technical analysis for EUR/USD.

Eurozone Flash CPI exceeded expectations rising 0.9%, following 0.7% gain in October. Although the growth rate increased, it remained well below the European Central Bank’s (ECB) inflation target of 2% for nine consecutive months. The lowest inflation in almost four years registered in October is quite likely the reason behind the sudden ECB rate cut seen in November. However, the 0.9% gain eases fears that the euro zone is headed for deflation. Will the ECB come up with further accommodative measures on its December 5 meeting?

Updates:

• EUR/USD: Bullish, Builds On Further Strength: EUR/USD: With continued bullish tone still intact., further upside could follow in the new week. However, it will have to...
• EUR/USD Dec. 2 – Lower After Weak Spanish PMI: EUR/USD has edged lower on Monday, following the release of Eurozone PMIs. The pair is trading in the high-1.35 range in...
• December to commence usual risk on appetite?: Idea of the Day So as December gets underway and US investors return having recovered from their Thanksgiving festivities, we...
• U.S. consumer spending losing momentum over Black Friday weekend: The Black Friday retail scrum may have made Thanksgiving football look civilized in comparison, but it appears that the U.S. consumer spending...
• Preparing for the ECB: The single currency was feeling a little heavy yesterday, helped by the weaker manufacturing PMI data from Spain.  That said,...
• New rules for the Aussie: Idea of the Day After weaker than expected GDP data overnight, the Aussie is very close to breaking below the...
• EUR/USD – Dec. 4 – Little Movement After Mixed Eurozone PMIs: EUR/USD is showing little change in Wednesday trading, as the pair trades in the high-1.35 range. In economic news, Spain continues to release strong...
• ADP Non-Farm Payrolls jump to 215K – dollar higher: The ADP Non-Farm Payrolls report exceeded expectations for November and hit 215K jobs in the private sector. It was expected...
• Stocks slide for the third day: A day devoid of tier-1 economic data for North America saw stocks slide for the third day in a row,...
• This Friday’s NFP is important, but it’s not the most crucial one: Friday is US Non Farm Payrolls – arguably the most important data release in the calendar. Every month each number...

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

 

1. Manufacturing PMIs: Monday. Manufacturing in the euro zone continued to expand in October following an 18-month recession. According to the Markit Manufacturing Purchasing Managers’ Index struggling economies such as Spain and Italy posted growth; Spain registered 50.9 from 50.7 in September while Italy dropped 0.1 points to 50.7 from 50.8 in the previous month but still indicating expansion. Meanwhile, the Eurozone edged up to 51.3 from 51.1 in September following a 26-month high of 51.4 reached in August. The numbers show a possible turning point for the Eurozone economy. Spain is expected to rise to 51.3, Italy is expected to increase to 51.4 and the Eurozone to remain 51.5.
2. Spanish Unemployment Change: Tuesday, 8:00. Spain’s unemployment continued to rise in October following layoffs of tourist season hires. Despite the relative improvement in economic conditions, unemployment is expected to remain around 25% throughout 2015. The number unemployed edged up by 87,028 people, leaving 4.81 million out of work. The pick-up in Spain’s economy is expected to be mild due to the high unemployment rate which is expected to improve only in the later part of 2014. A rise of 44,300 unemployed is expected.
3. PPI: Tuesday, 10:00. Producer price inflation in the euro area increased less than expected in September with a mild rise of 0.1%. Economists expected a bigger climb of 0.3%. On a yearly base, producer price index dropped 0.9% in September following 0.8% in August. A drop of 0.1% is expected.
4. Services PMIs: Wednesday. The Euro area service sector weakened slightly in October. Eurozone  PMI for the services sector, slipped to 51.6 from 52.2 in September, higher than the preliminary reading of 50.9, but still indicating expansion. Meanwhile, Italian services declined to 50.2 from 52.7 in September and in Spain, services climbed to 49.6 but remained in contraction.  These weak figures led the ECB to cut rates in November to try and boost market activity. Spain is expected to rise to 50.7, Italy to 51.2 and the Eurozone to remain at 50.9.
5. Retail Sales: Wednesday, 10:00. Euro zone retail sales plunged 0.6% in September, amid fragile economic recovery and persistently high unemployment. This reading ws worse than the 0.3% drop expected by analysts and was followed by a 0.5% rise in August. Domestic demand in the euro zone remained subdued after its longest recession since the creation of the euro in 1999.  The European Commission expects a partial rebound in market activity next year, but domestic demand is still fragile. A rise of 0.2% is expected now.
6. Rate decision : Thursday, 12:45, press conference at 13:30. After the surprising rate cut in November, the ECB is likely to leave policy unchanged in December. The rate cut has little impact on the economy and with the hindsight of a few weeks, it had no long lasting effect on the exchange rate: the euro is now stronger than before the move. Nevertheless, and despite fear of deflation, another move now would be problematic for the northern block and especially for the Bundesbank. So, Draghi is likely to emphasize that the ECB is considering more moves in the near future, hinting about setting a negative deposit rate already in January. A hint would hurt the euro, and a negative deposit rate would have a much stronger effect on the euro than cutting the lending rate.
7. French Gov Budget Balance: Friday, 7:45. The French government budget balance narrowed to a seasonally adjusted -80.8 billion in September, from -93.6 billion in the preceding month. France’s credit rating was cut by S&P to AA last month raising antagonism against Hollande’s economic policies. S&P forecasts that French unemployment will remain above 10% through 2016, thanks in part to the country’s exporters losing market share to rivals in Europe with more flexible tax and labor policies.
8. German Factory Orders: Friday, 11:00. German factory orders edged up more than estimated in September, jumping 3.3% compared to a 0.3% fall in the previous month. This rise suggests German economy benefits from the gradual recovery in the Euro-area. Economists expected a gain of 0.6%. Orders picked-up 7.9% from a year ago. Despite, downside risks in the Eurozone,. Economists forecast a stronger recovery in 2014. A drop of 0.4% is projected this time.

* All times are GMT

EUR/USD Technical Analysis

Euro/dollar started the week with a slide to the round 1.35 line (mentioned last week). It then began a gradual grind higher, settling above 1.3570. It was unable to challenge the 1.3650 line.

Technical lines from top to bottom:

1.3870 capped the pair during the fall of 2011 and served as the “shoulders” in a H&S pattern. 1.38 is a round number and also worked as a temporary cap during that period of time and also in October 2013.

1.3710 was the previous 2013 peak, and served as a clear separator. The pair needed a big trigger to break above this line, and when it lost it again, the fall was painful.

1.3650 temporarily capped the pair during that period of time and is stronger after capping the pair in October 2013. It returns to serve as resistance. 1.3570 is the swing high of September 2013 and also proved itself as resistance quite a few times afterwards. It temporarily stopped the avalanche.

1.35 is a nice round number and was a pivotal line or “magnet” within the previous range. 1.3440 worked as a clear separator in early November 2013 and is a key line to the upside.

The round number of 1.34 worked as resistance several times in 2013, and is strengthening now. 1.3320 worked as a double top in early September and it was crossed only with a Sunday gap. It remains a clear separator of ranges.

It is followed by 1.3240, which capped the pair in April and also had a role in August. It worked as support in September. 1.3175 capped the pair 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 and providing support in September. 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.

Broken downtrend resistance 

We can note (thick black lines on the chart) that the downtrend resistance line from October has been broken. In addition, the moderate uptrend support line starting from September.

I am bearish on EUR/USD

On one hand, the ECB isn’t likely to move again after the surprising rate cut last month and the stronger than expected inflation numbers. However, inflation is still low, money supply is short and the euro is painfully strong for many countries. Draghi could certainly place the “nuclear” option of a negative deposit rate higher on the agenda, hinting about a move in Q1. This could at least allow for a consolidation of recent gains.

On the other side of the Atlantic, the Fed could still taper in December, especially after it wassuccessful in separating expectations for a rate hike from QE tapering. A strong NFP could certainly boost the greenback.

Read More

Gold futures edge lower on Fed taper fears

Gold futures edged lower on Friday, ahead of a highly anticipated U.S. jobs report later in the day, as Thursday's upbeat economic data fuelled expectations for the Federal Reserve to soon begin tapering its stimulus program.

On the Comex division of the New York Mercantile Exchange, gold futures for February delivery traded at USD1,227.8 a troy ounce during European afternoon trade, down 0.33%. 

The February contract settled 1.23% lower on Thursday to end at USD1,231.9 a troy ounce. 

Gold futures were likely to find support at USD1,211.10 a troy ounce, Wednesday's low and resistance at USD1,250.80, Wednesday's high. 

Gold prices came under pressure on Thursday, after the U.S. Commerce Department said gross domestic product increased at a seasonally adjusted annual rate of 3.6% in the three months to September, above expectations for growth of 3.0% and up from a preliminary estimate of 2.8%. 

Separately, the U.S. Department of Labor said the number of individuals filing for initial jobless benefits last week fell by 23,000 to a seasonally adjusted 298,000, from 321,000 in the previous week whose figure was revised up from 316,000.

The strong data added to expectations the Fed could begin tapering its montly asset purchases in the near future. 

The Fed, which holds its next meeting on December 17-18, has said the timing of its tapering depends on the health of the labor and housing markets.

Gold is down approximately 28% this year, heading for the first annual loss in 13 years, as solid U.S. economic data underlined expectations the Fed will begin curbing stimulus. 

Elsewhere on the Comex, silver for March delivery declined 0.43% to trade at USD19.485 a troy ounce, while copper for March delivery gained 0.50% to trade at USD3.246 a pound.

Read More

U.S. futures rise as markets eye nonfarm payrolls; Dow Jones up 0.32%

U.S. stock futures pointed to a higher open on Friday, as markets eyed the release of a highly anticipated U.S. jobs report later in the trading session, amid speculation the Federal Reserve could scale back its asset purchases in the coming months. 

Ahead of the open, the Dow Jones Industrial Average futures pointed to a 0.32% rise, S&P 500 futures signaled a 0.39% increase, while the Nasdaq 100 futures indicated a 0.29% gain. 

Markets were jittery on Thursday after the U.S. Commerce Department said gross domestic product increased at a seasonally adjusted annual rate of 3.6% in the three months to September, above expectations for growth of 3.0% and up from a preliminary estimate of 2.8%. 

Separately, the U.S. Department of Labor said the number of individuals filing for initial jobless benefits last week fell by 23,000 to a seasonally adjusted 298,000, from 321,000 in the previous week whose figure was revised up from 316,000. 

J.C. Penney was likely to be in focus, after the retailer disclosed that the U.S. Securities and Exchange Commission asked for information about its finances, including a stock sale in September that it’s using to fund an attempted turnaround. 

Shares in the company plummeted 3.95% in pre-market trade. 

In the financial sector, Citigroup and Wells Fargo were accused of discriminatory mortgage lending by the city of Los Angeles, which seeks damages for reduced property tax revenue and the costs of maintaining foreclosed properties. 

In similar news, Goldman Sachs was sued by Singaporean wealth-management client Oei Hong Leong over a USD34.3 million loss on Brazilian real-yen options trades he claimed the bank misled him into making. 

Elsewhere, Twitter shares were steady in earl trading as co-founder Jack Dorsey reportedly sparked a price war over Japanese credit-card transactions with SoftBank's Masayoshi Son. 

Other stocks likely to be in focus included American Eagle Outfitters, scheduled to report quarterly earnings later in the day. 

Across the Atlantic, European stock markets were higher. The EURO STOXX 50 edged up 0.11%, France’s CAC 40 added 0.11%, Germany's DAX rose 0.37%, while Britain's FTSE 100 gained 0.44%. 

During the Asian trading session, Hong Kong's Hang Seng Index edged up 0.13%, while Japan’s Nikkei 225 Index climbed 0.81%. 

Later in the day, the U.S. was to release government data on nonfarm payrolls and the unemployment rate, while the University of Michigan was to produce the preliminary reading of its consumer sentiment index.

Read More

Dollar mixed vs. rivals ahead of U.S. jobs report

The dollar was mixed against the other major currencies on Friday, as markets were eyeing the release of a highly anticipated U.S. jobs report later in the day, amid growing expectations for the Federal Reserve to soon begin tapering its monthly bond purchases.

During European morning trade, USD/JPY rose 0.32% to 102.11.

The greenback remained supported after the U.S. Commerce Department on Thursday said gross domestic product increased at a seasonally adjusted annual rate of 3.6% in the three months to September, above expectations for growth of 3.0% and up from a preliminary estimate of 2.8%. 

Separately, the U.S. Department of Labor said the number of individuals filing for initial jobless benefits last week fell by 23,000 to a seasonally adjusted 298,000, from 321,000 in the previous week whose figure was revised up from 316,000.

Elsewhere, EUR/USD was down 0.01% to 1.3665.

The pound edged higher against the dollar, with GBP/USD up 0.16% to 1.6362. 

Industry data earlier showed that house price inflation in the U.K. rose 1.1% in November, beating expectations for a 0.6% increase, after an upwardly revised 1.3% rise the previous month.

The dollar was little changed against the Swiss franc, with USD/CHFeasing 0.06% to 0.8962. 

Official data showed that Swiss consumer price inflation was flat last month, compared to expectations for a 0.2% fall, after a 0.1% downtick in October.

The greenback was steady to higher against the Australian, New Zealand and Canadian dollars, with AUD/USD flat at 0.9062, NZD/USDslipping 0.30% to 0.8195 and USD/CAD up 0.03% to 1.0659.

The U.S. dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.08% to 80.35. 

Later in the day, the U.S. was to release government data on nonfarm payrolls and the unemployment rate, while the University of Michigan was to produce the preliminary reading of its consumer sentiment index. 

Read More

European stocks open higher, focus on U.S. data; Dax up 0.50%

European stocks opened higher on Friday, as investors were awaiting the release of a highly anticipated U.S. jobs report later in the day for further indications on the future of the Federal Reserve's stimulus program. 

During European morning trade, the EURO STOXX 50 edged up 0.17%, France’s CAC 40 added 0.23%, while Germany’s DAX 30 climbed 0.50%. 

On Thursday, the European Central Bank left its benchmark interest rate at a record low of 0.25%. 

Following the decision, ECB President Mario Draghi said that risks to the economic outlook remained on the downside. He also warned the euro zone could face a prolonged period of low inflation. 

Financial stocks were mixed, as French lenders BNP Paribas and Societe Generale rose 0.44% and 0.05%, while Germany's Deutsche Bank slid 0.39%. 

Among peripheral lenders, Spanish banks BBVA and Banco Santander declined 0.24% and 0.51% respectively, while Italy's Intesa Sanpaolo and Unicredit eased up 0.05% and 0.15%. 

Elsewhere, Total rallied 1.11% after Europe’s third-biggest oil company agreed to buy a stake in InterOil Corp.’s assets in Papua New Guinea. 

Meanwhile, Givaudan saw shares plunge 3.56% after Nestle said it will sell shares worth USD1.27 billion of the world’s largest flavorings maker. 

In London, FTSE 100 rose 0.23%, supported by gains in the financial sector. 

Shares in the Royal Bank of Scotland inched up 0.05% and Lloyds Banking added 0.35%, while HSBC Holdings gained 0.45% and Barclays advanced 0.74%. 

Adding to gains, U.K. homebuilder Berkeley Group Holdings soared 9.60% after reporting that first-half revenue increased 20%. 

On the downside, Shire Plc tumbled 1.51% after the drugmaker’s Lifitegrast, a treatment for dry eye disease, met one goal in a study for eye dryness and missed another for inferior corneal staining. 

In the U.S., equity markets pointed to a higher open. The Dow Jones Industrial Average futures pointed to a 0.27% rise, S&P 500 futures signaled a 0.31% increase, while the Nasdaq 100 futures indicated a 0.20% gain. 

Later in the day, the U.S. was to release government data on nonfarm payrolls and the unemployment rate, while the University of Michigan was to produce the preliminary reading of its consumer sentiment index. 

Read More