EUR/USD Forecast Apr 14-18

EUR/USD made an impressive comeback, breaking above the downtrend channel. Will the ECB talk the euro down, or is 1.40 the next target? Final CPI numbers and an important German survey are the highlights. Here is an outlook on the highlights of this week and an updated technical analysis for EUR/USD.

The pair was already advancing nicely when the relatively dovish FOMC Meeting Minutes extended the dollar sell off, and the pair shot even higher. A successful bond auction from Greece also helped and the euro ignored the weaker than expected inflation numbers from France and from other countries and some attempts to talk down the euro. Is 1.40 still the line in the sand? Let’s start:

Updates:

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

1. Industrial Production: Monday, 10:00. Industrial production in the Eurozone declined 0.2% in January, despite predictions for a 0.6% rise and following a 0.4% fall in December. The reading suggests recovery is fragile in the Euro-area. On a yearly base, production increased 2.1%. Regardless of the three quarter expansion, the pace of growth hasn’t exceeded 0.3% with a high unemployment rate and low inflation rate. Industrial production is expected to climb 0.3%.
2. German ZEW Economic Sentiment: Tuesday, 10:00. German analyst and investor climate fell further in March, dropping at the fastest pace in nearly a year, reaching 46.6 compared to 55.7 posted in February. The sharp decline occurred amid concerns over the Ukraine crisis. The seizure of the Ukrainian region of Crimea by Russian-speaking troops has escalated East-West crisis. Analyst sentiment is expected to decline further to 46.3.
3. ZEW Economic Sentiment: Tuesday, 10:00. ZEW Economic Sentiment for the Euro area fell sharply to 61.5 in March from a 68.5 in February, missing predictions for 67.3 points. ZEW President Prof. Dr. Clemens Fuest noted that the Crimea Crisis has weighed on analysts’ economic expectations. The index has fallen 3 times in a row, while it has slid 4 times in a row in the German index. ZEW Economic Sentiment for the Euro area is expected to reach 60.7.
4. Italian Trade Balance: Wednesday, 9:00. Italian trade balance disappointed in January posting a smaller than expected surplus of €0.40 billion, following €3.61 billion  in the previous month. Economists expected the gap between imports and exports to reach €2.47 billion. Imports took a sharp dive while exports only rose by a fraction at 0.1%, indicating that the business activity is sluggish. Surplus is expected to widen to €1.27 billion.
5. Inflation data: Wednesday, 10:00.  Euro zone annual inflation fell to 0.7% in February; the same level posted in November 2013, when a rate cut was announced, triggering deflation fears in the Euro bloc. February’s fall was preceded by 0.8% inflation rate in January. Analysts expected inflation to remain at 0.8%. Meanwhile Core CPI  excluding food, energy, alcohol, and tobacco, increased to 1.0%, in line with market forecast, following a 0.8% rate posted in the previous month. The ECB president Mario Draghi said in March that the bank will act to guard against possible deflation, but noted the chances for deflations are low. CPI is expected to gain 0.5%, while core CPI is predicted to climb 0.8%.
6. German PPI : Thursday, 7:00. Producer prices in Germany remained unchanged in February, from a 0.1% decline in the previous month while analysts expected a 0.2% rise. On a yearly base, Germany’s producer price index, fell by 0.9% compared to the same period in 2013, following a 1.1% drop in January. prices of consumer non-durable goods increased by 1.3% while prices of intermediate goods were 1.9% low and energy 2.6% low compared with February 2013. Producer prices are expected to gain 0.1%.
7. Current Account: Thursday, 9:00. The Eurozone’s current account surplus increased to 25.3 billion euros ($35 billion) in January, after posting 20 billion euros in December. Analysts expected current account surplus to decline to 18.4 billion euros.Over the 12 months to January, the current account showed a surplus of 227.9 billion euros, compared with a surplus of 135.4 billion euros a year earlier, the data showed. Surplus is expected to narrow to 22.3 billion.

* All times are GMT

EUR/USD Technical Analysis

Euro/dollar started off the week by retaking the 1.3740 line (mentioned last week). From there it was all uphill, with the pair eventually struggling with the 2013 high of 1.3894

Technical lines from top to bottom:

We start from higher ground this time. 1.4105 provided support for the pair during August 2011. It is followed by 1.4055, which worked as a lower line in that period of time.

The all important round number of 1.40 is of high political importance. We have seen how getting close to the line triggered a critical comment that sent it down. Below, the 2014 high of 1.3964 will be closely watched.

The 2013 high of 1.3895 is a pivotal line in the high range. 1.3830, which was a long serving 2013 peak comes back into the focus after capping the pair in March 2014 and serving as a clear separator several times.

The round number of 1.38 is is weakening, but still important. It served as resistance in December. 1.3740, which provided some support at the end of 2013 is now key support to the downside. 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.

Broken Downtrend channels

The pair was trading along downtrend support and under two downtrend lines. After capturing the first line, the pair paused for a short while and then continued to the second line. These are now left behind.

I turn bearish on EUR/USD

The world of currencies was partying on the dollar as Yellen’s comment was undone in the FOMC minutes. However, this move is somewhat overextended, especially as US jobs data looks good. Regarding the euro, it is now too high and we could hear Draghi playing it down as it approaches 1.40. In addition, inflation numbers are likely to be revised to the downside, weighing on the euro.