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Monday, 10 March 2014

EUR/USD Forecast March 10-14


EUR/USD had a superb week, riding on the inaction of the ECB to reach levels last seen in 2011. Is it the beginning of a long rally? Industrial production data, Eurogroup and ECOFIN Meetings and inflation data are the highlights of this week. Here is an outlook on the major events and an updated technical analysis for EUR/USD.
After the ECB made no changes in rates, Draghi gave the euro a big boost. as he refrained from taking actionto ease pressure on short-term borrowing rates caused by European banks paying back LTRO loans. Some analysts expected Draghi would end sterilization of its SMP program. The lack of news was excellent news for the euro. In the US, Non-Farm Payrolls surprised to the upside, and this stopped the rally, but EUR/USD remains on high ground. Let’s start,
Updates:
EUR/USD daily graph with support and resistance lines on it. Click to enlarge:
EURUSD March 10 14 technical analysis forex trading euro dollar for currency trading
  1. French Industrial Production: Monday, 7:45. France’s industrial production declined 0.3% in December, following a sharp rise of 1.2% in the previous month. Economists expected a smaller drop of 0.1%. Output declined in transport equipment as well as energy products, however motor vehicles went up. French manufacturing showed signs of improvement, but remained in contraction as well as in the service sector. Francoise Hollande’s reform agenda may give the necessary boost to start recovery in the French economy. Industrial production is expected to increase by 0.6%.
  2. Italian Industrial Production: Monday, 9:00. Italian industrial production plunged 0.9% in December, following a 0.3% rise in November. Likewise, Italian Service and Retail sectors remained in contraction, despite some improvement in the manufacturing sector. Italian industrial production is predicted to gain 0.4%.
  3. Sentix Investor Confidence: Monday, 9:30. Investor sentiment in the euro zone increased to 13.3 in February, reaching the highest level since April 2011, following 11.9 in January. Analysts expected a decline to 10.7 in February. Investors were more confident regarding the Eurozone’s economic outlook. Investor confidence is expected to rise to 14.3.
  4. Eurogroup meetings: Monday. The Eurogroup, an informal body includes Member States using the euro currency. It meets normally the day before the Ecofin meeting in Brussels and deals with issues relating to the Economic and Monetary Union (EMU). 
  5. German Trade Balance: Tuesday, 7:00. Germany’s seasonal adjusted trade surplus, narrowed less than expected in December to €18.5 billion from a revised €18.9 billion in November. The release was above the €17.3 billion projected by analysts. Both the trade and the current account surplus were above expectations. Meanwhile, German exports in December declined 0.9% from November, but increased 4.6% on a yearly base. German exported mainly to other EU countries, followed by exports to countries outside the single market. Surplus is expected to rise to €19.3 billion.
  6. ECOFIN Meetings: Tuesday. The Economic and Financial Affairs Council, is one of the oldest Council configurations. It is composed of the Economics and Finance Ministers of the Member States, as well as Budget Ministers when budgetary issues are discussed, and meets on a monthly basis. It covers EU policy in a number of areas including: economic policy coordination, economic surveillance, monitoring of Member States’ budgetary policy and public finances, the euro (legal, practical and international aspects), financial markets and capital movements and economic relations with third countries.
  7.  French Final Non-Farm Payrolls: Wednesday, 6:30.  French non-farm job market contracted further in the third quarter, falling 0.1% after a 0.2% decline in the preceding quarter. The reading was in line with market forecast. Employment, excluding the farming industry, decreased by 15,600 in the three-month period ending September measured on a quarterly basis, after falling 37,700 in the second quarter. Excluding temporary work, employment plunged by 20,600 jobs in the third quarter 2013. The European Commission projects consumption will improve gradually as well as investments. The commission projects a GDP growth rate of 0.2% in 2013, with a pick up to 0.9% growth in 2014.  A rise of
  8. Industrial Production: Wednesday, 10:00. Euro zone industrial production plunged 0.7% in December, far more than the 0.2% decline projected by analysts, following a 1.6% gain in November. The sudden fall stopped GDP growth in the final quarter of 2013. However economists stated that industrial production actually was 0.3% higher in the last three months of 2013 compared to the third quarter. The main declines in production were mainly related to energy and capital goods.
  9. French CPI: Thursday, 7:45. French Consumer prices fell 0.6% in January, declining 0.3% in December. On a yearly base, CPI increased 0.7% in January as in December. The largest declines occurred mainly from winter sales which explained the fall of manufactured product prices.
  10. ECB Monthly Bulletin: Thursday, 9:00. The European Central Bank, stated its monthly bulletin on February that forward guidance will continue, keeping interest rates at low levels for an extended period. Regarding inflation, the ECB said subdued global inflation will continue in the coming months as spare capacity worldwide remains large. However a gradual improvement in global economic activity will support a gradual increase in global inflation.
  11. Employment Change: Friday, 10:00. The Eurozone’s job market has remained unchanged in the third quarter, the same as in the second quarter, indicating economic recovery has not yet reached the labor market. Nevertheless, the workforce was shrinking more slowly than a year ago. The unemployment rate remained above 12% expecting to improve gradually this year while economic growth slowly picks up. Germany registered a 0.2% quarterly growth in employment while France and Italy remained unchanged. However the Eurozone economy showed signs of recovery in the first months of 2014 which nay boost the labor market condition.
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar began the week with perfect range trading between the 1.37 and the 1.3773 lines (mentioned last week). After dipping to 1.3650, the pair recaptured 1.37 and then jumped all the way to 1.3823 before ticking lower. The ECB announcement sent it all the way to the highest since October 2011 at 1.3915, but the pair eventually returned below the 2013 high of 1.3894.
Technical lines from top to bottom:
The all important round number of 1.40 is of high political importance. Below, 1.3940 served as resistance back in 2011.
The 2013 high of 1.3895 is the top line looming above and it is becoming more important. 1.3830 was a serious peak that was seen with better volume and was challenged afterwards in 2013.
1.3773 was a cap in February and beforehand in December 2013 and now switches to strong support. The round number of 1.37, is another support line after capping the pair in December.
1.3650 provided support in December and worked as resistance in September 2013, and is also a significant line. Also the February rally fell short of this line. Below, 1.3560 worked as good support twice during February 2014.
The January 2014 low of 1.3515 provides minor support on the way down. 1.3450 worked as resistance in August 2013 and as support in September and October. It is now a key line on the downside.
Long term uptrend resistance breakout?
A downtrend resistance line that dates from mid 2008 has been crossed on the monthly chart. This still awaits a clear confirmation.
I am bullish on EUR/USD
The 2016 forecasts of the ECB leave little room for doubt: the ECB is not really concerned with the low level of inflation. A negative deposit rate will be kept deep in the shed. And while the exchange rate was mentioned several times, the optimism coming out from the powerful institution about the recovery means that there is room for more euro appreciation before deflation worries return.
In the US, the better than expected NFP confirmed the taper, but this will not be huge surprise. Also the technical look seems quite bullish.

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