EUR/USD Forecast for January 02 – 06, 2012

fx crunch
EUR/USD capped in a narrow range in the last week of 2011 but in the end extended its losses for 2011. The first week of 2012 is filled with economic indicators as market contestants return from their holidays. Here is an outlook for the events pending, and an updated technical analysis for Euro / Dollar.
Italy had another dreadful bond auction. It’s not that yields hopped, but if they continue at current levels, the euro-zone’s third major country will find itself in a debt trap that might be able to bring the whole system down. The currency pair ended 2011, over 400 pips lesser.

Final Manufacturing PMI: Monday, 9:00. According to the early publication, the manufacturing sector is toning at a slower speed than earlier, with the PMI at 46.9 points. This will probable be confirmed now, and it replicates a 5th successive month of narrowing.

German Unemployment Change: Tuesday, 8:55. After one month of a climb in unemployment, the number fallen again, showing the power of the German economy. A smaller fall than last month’s 20,000 is estimated now – 9,000.

French Consumer Spending: Wednesday, 7:45. The euro-zone’s second largest economy has practiced no increase in consumer spending last month, after very small changes earlier. An increase is expected now, of 0.5%.

Final Services PMI: Wednesday, 9:00. The services sector is contracting at a slower pace than the manufacturing sector. The primary score for December stood on 48.3 points. The figure is predicted to be confirmed, showing a 4th consecutive month of contraction in services sector.

CPI Flash Estimate: Wednesday, 10:00. In the past three months, the inflation level stood on 3%. This was not enough for the central bank to cut interest rates. Inflation is expected to drop already now, but remain above the 2.00% target. 2.80% is the consensus.

German Retail Sales: Europe’s greatest economy has seen a miniature drop in the volume of sales last month. A return to expansion is possible now, but this rise will likely be small, +0.3%.

Industrial New Orders: Thursday, 10:00. The total of new orders in the manufacturing sector dropped sharply last time: 6.2%. This was very disappointing. A rise of 2.6% is the forecast now, in this significant figure.

PPI: Thursday, 10:00. Producer prices are moving little by little in current months. Last month saw a small rise of 0.1%, and a parallel rise is likely now.

Retail Sales: Friday, 10:00. This vital consumer indicator improved from a drop two months ago and managed to rise by 0.3%. With a decelerate in many countries, a drop of 0.2% is expected now.

Unemployment Rate: Friday, 10:00. After several months without changes, the last three months saw a steady rise in the unemployment rate, and this is quite disturbing. No change is expected from last month’s 10.3% rate. 

German Factory Orders: Friday, 11:00. This is an extremely volatile indicator. After a plunge of 4.6% two months ago, a leap of 5.2% was recorded last month. A rise of 1.5% is expected now. Despite the high volatility, the indicator has a strong impact on the common currency.

* All times are GMT

EUR/USD Technical Analysis
EUR/USD traded in a very thin range at the start of the week, around the 1.3060 line. It then took a drop and even dipped below the previous YTD low and reached 1.2858. It ends 2011 on a low note.

Technical levels:
1.3550 provided support early in September and then turned into resistance after the fall. It proved it can act as good resistance as well, as seen after the Non-Farm Payrolls. 1.3480 was able to stop an effort to rise in December. It as well had a bi-directional function in September.
The 1.3420 level is weaker now however still important. When this bottom edge of the range was broken, it instantly switched to resistance. 1.3380 is the next line. It is a minor pivotal line now once again. 1.3280 was the bottom in December and is key resistance.
Another line of consideration is 1.3212 which held the pair from declining and toggled to resistance afterward. Very vital resistance is at 1.3145 which was the lowest position seen in the current round of the crisis and was only broken for a short time from the other side.
1.3085 was the top boundary of a very narrow range that described the pair towards the end of 2011. It also offered support in December 2010.
The round number of 1.3000 is psychologically significant and also worked as a level of support. After the collapse, it was shattered. The new low of 1.2945 is still essential as a pivotal line after the downwards move.
1.2873 is the earlier 2011 low set in January, and still provides tough support. The break was only momentary. 1.2734 worked as support in the summer of 2010 and is the subsequent line below.
1.2640, is a weaker level of support, after working as such through the fall of 2010. The last is 1.2587, the trough of August 2010.

Downtrend channel
A sharp and broadening downtrend channel can be visible on the graph, and is stronger now after downtrend support offered support during the collapse. Downtrend resistance started at the end of October and has been widened to provide accommodation to the changes. Downtrend support was produced later on but is more distinct – it wasn’t violated.

Remain bearish on Euro / Dollar
As the New Year starts and all market contributors get back to their desks, the decline in Europe, high funding costs of Italy and no clarification to the debt crisis all point to lower ground. In the United States, things are looking a little better.

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