EUR/USD Forecast June 24-28

FTS-Forex Trading: EUR/USD advanced to new highs only to crash on the prospects of QE tapering in the US. Is it set to lose 1.30, or can we expect it to stabilize? German Ifo Business Climate, and German employment data are the highlights of this week. Here is an outlook for the events that will move the euro and an updated technical analysis for EUR/USD.

Ben Bernanke laid out a path for tapering the Fed’s bond buys, and this sent the euro from the highs of 1.34 to below 1.32. While the euro showed relative resilience, the flock into US dollars took its toll. ECB President Mario Draghi announced in a speech that he is willing to use “non-standard” monetary measures if worse comes to worse. A negative deposit rate is a valid option to which ended up in hurting the Euro. Long-term lending operations and modifying collateral requirements are other possibilities Draghi considers to save the Euro-area from a further plunge. Will Draghi enact these measures in the coming months?

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

1. German Ifo Business Climate: Monday, 8:00. German business sentient increased unexpectedly in May to 105.7 points from 104.4 points in April amid improvement in businesses and growing optimistic about the future. The increase came after two straight declines. Another rise to 106 is expected.
2.  Belgium NBB Business Climate: Monday, 13:00. Belgian business confidence, improved more than expected in May, rising to -12.4 from -14.7 in April amid gains in construction and business-related services sectors. Economists expected a minor rise to -13.4.  A further advance to -11.1 is expected now.
3. Italian Retail Sales: Tuesday, 8:00. Retail sales edged down 0.3% in March, after declining 0.2% in February. The drop was contrary to predictions of a 0.3% increase. On a year-on-year basis, retail sales dropped 3.0% in March after registering a 4.8% fall in February. No change is expected this time.
4. GfK German Consumer Climate: Wednesday, 6:00. German Consumer Sentiment is expected to reach 5-year high of 6.5 in June, according to GfK forecast, amid improvement in the job market and lower inflation boosting consumer spending. Households were the main factor behind Germany’s 0.1% growth in the first quarter. Gfk projects recovery will continue in 2013 at a moderate pace. Another rise to 6.6 is forecasted.
5. German Import Prices: Thursday, 8:00. Import prices in Germany fell 1.4% in April, worse than the 0.2% projected, following a 0.1% dip in March. However, on an annual bases, import prices fell 3.2% in April after a 2.3% decline in March affected by the slow Eurozone recovery. A decline of 0.1% is predicted.
6. German Unemployment Change: Thursday, 7:55. German unemployment list increased more than expected in May adding 21,000 to 2.963 million, however the unemployment rate remained low. Economists estimated a small rise of 4,000. Nevertheless, the overall the German labor market is still in a good condition. A small increase of 6,000 is expected this time.
7. M3 Money Supply: Thursday, 8:00. The Eurozone M3 money supply index for April 2013 increased 3.0%, beating the median estimate of 2.9%. The annual M3 seasonally adjusted for April registered an increase of 3.2% above expectations of 2.9% better than the preceding month’s reading of 2.6%. A gain of 2.9% is projected now.
8. Retail PMI: Thursday, 8:10. The Purchasing Managers Index for traders in the Eurozone edged up to an eight-month high of 46.8 following 44.2 in the previous month but still remains below the 50 point line, indicating contraction. Overall retail in the euro area remained in contraction in May.
9. EU Economic Summit: Thu-Fri. The two-day EU summit in Brussels will discuss unemployment, especially youth unemployment since joblessness in the EU continues to rise. Germany will likely refrain from further loans to its EU neighbors due to the approaching elections in September. Therefore the important decisions are likely to be postponed until the next EU meeting in December.
10. German Retail Sales: Friday, 8:00. German retail sales dropped 0.4% in April following a 0.5% dip in the previous month missing market predictions of a 0.3% rise. The possible reason behind the weaker-than-expected reading is that the cold winter was prolonged this year pushing prices for seasonal vegetables higher, causing households to cut back on spending. Retail sales are expected to advance 0.4% in May.
11. German CPI: Friday. Consumer prices edged up 0.4% in May, beating predictions for a 0.2% rise, adding 0.3% to the annual inflation rate which now stands at 1.5 percent, its highest level since February. This increase was preceded by a 0.5% decline in April. The main pressure on prices was apparent in package vacations while energy bills dropped sharply. Nevertheless the ECB does not have to be concerned with rising inflation. No change is forecast. German inflation has a strong influence on the ECB.
12. French Consumer Spending: Friday, 8:45. Consumer spending in France, declined less than expected in April, down 0.3% from a 1.3% gain in March. Food expenditure declined 3.3% from March. Car sales increased 1.8% in April. Rising unemployment hinders a recovery in consumer spending, which in turn affects the overall economic expansion. Consumer spending is expected to remain unchanged this month.

*All times are GMT

EUR/USD Technical Analysis

Euro/dollar started the week by continuing its previous advance along the steep uptrend support line (mentioned last week) and topped out at 1.3420. From there, it was all downhill. The pair initially traded between the 1.3160 and 1.3255 lines before making another move lower and finding support down at 1.31. It closed at 1.3119.

Technical lines from top to bottom:

We start from lower ground this time. 1.3480 was the “shoulders” of an old H&S pattern. 1.3434 is a line in the middle of the 1.34 to 1.3480 range.

The round line of 1.34 served in both directions when the pair traded in higher ground. The pair temporarily breached this line in June.  1.3350 provided support when the pair traded higher in February and now serves as a pivotal line.

1.3255 provided support during January 2013 and also beforehand. A recovery attempt failed to reconquer this line at first, but now this line is strong support. 1.32 is a clear top after capping the pair twice in April 2012 and then in May. This is a round number as well.

1.3160, which separated ranges in May 2013 is strengthening once again and worked perfectly well as a cap to a recovery attempt in June. 1.3100 is a minor line after working as temporary resistance in December 2012.

It is followed by 1.3050, which proved be strong support in May 2013, defending the round number in more than one occasion, and now works as support. The very round 1.30 line was a tough line of resistance and is becoming stronger after serving as a double top in May 2013. 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, replacing 1.2960. 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 somewhat weaker now.

1.2840 worked as a cushion for the pair during May 2013 and is a pivotal line at the moment. Lower, the round number of 1.28 was the bottom of a long term wide range in 2012 and its breach in May 2013 was not confirmed.

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.

Steep uptrend support broken

As the thick black line on the chart shows, EUR/USD clearly fell off this line and began a sharp move lower.

I am bearish on EUR/USD

The Fed said its word and it is dollar positive. While the move could have been a bit overdone, the US dollar is expected to remain bid. If no disaster happens, the next move in the US is a reduction of the pace of monetary stimulus rather than an increase.

Even if euro-zone numbers are not always that bad, the economy is still squeezing and more monetary stimulus cannot be ruled out. Current expectations for the July rate decision are for no big changes. If we get weaker indicators or dovish talk, the euro could tumble lower.

More technical analysis:

• EUR/USD Extends Decline towards 1.3000 and Lower - by James Chen
• EUR/USD, Gold update after Bernanke - Elliott Wave Analysis