EUR/USD Forecast for January 09 – 13, 2012

EURUSD dropped sharply as uncertainties around banks and sovereigns strengthen in the euro year. The highlight of this week is the rate decision by the ECB. Here is an outlook for the forthcoming events, and a technical analysis for Eurodollar.

Troubles in Unicredit, gossips about issues at Deutsche Bank and the expectation for a downgrade of France all weigh on the euro, in addition to weak economic statistics from all over the continent. Mean while, the US continues seeing rise in jobs and a fall in unemployment. The IMF has suspicions about Greece’s capability to avoid default, and a German politician talks about a need for a bigger haircut. This doesn’t promise well for the euro.

German Trade Balance: Monday, 7:00. Germany usually enjoys a high excess in its balance of trade. After dipping surprisingly from 15.1 to 12.6 billion, Germany’s trade balance is estimated to remain unaffected this time, in the description for November. 

Sentix Investor Confidence: Monday, 9:30. This survey of analysts and investors is in negative region for 5 months already, plunging deeper each month. The same level of distrust is expected to continue nearly unchanged, with the number likely to tick up from -24 to -23.5 points.

German Industrial Production: Monday, 11:00. The fresh report about a sharp dive in factory orders lowers expectations for the country’s industrial production. After increasing by 0.8% last month, a decrease of 0.4% is projected now.

French Industrial Production: Tuesday, 7:45. The zone’s second major economy saw no change last month. A modest increase of 0.1% is expected now.

Final GDP: Wednesday, 9:00. According to the initial release, the euro-zone grows by 0.2% in the third quarter of 2011. The final figure will almost certainly verify this. The fourth quarter will likely show contraction.

French CPI: Thursday, 6:30. Consumer prices most likely rose for the second month in a row. December’s figure is expected to show a rise of 0.2%, a downwards alteration from the first release, 0.3%.

German Final CPI: Thursday, 7:00. According to the earlier release, prices jumped by 0.7% after a few months of almost no changes. This will likely be confirmed now.

Industrial Production: Thursday, 10:00. This figure is published after Germany and France published their respective. However, the publication has a considerable impact on the euro.

Rate decision: Thursday, 12.45, press conference at 13.30. After two consecutive rate cuts, Mario Draghi is expected to oversee his initial judgment not to raise the rates. At 1%, the Minimum Bid Rate is back to the low stage seen after the financial crisis. Another cut is preferred by some members, despite inflation standing beyond target, yet this will possibly wait. There is some possibility that the ECB will declare new measures to aid the very troubled banks, adding to the 3 year unlimited and economical loans previously announced. The earlier operation already saw a massive €489 billion tapping, but it didn’t help the euro. 

Trade Balance: Friday, 10:00. The entire euro-zone saw two straight months of trade surpluses. This will possibly continue now, with a surplus of 0.7 billion, less than last time.

* All times are in GMT

EURUSD Technical Analysis
Euro/Dollar started the year with a nice climb but faced resistance at the 1.3060. It was all downward from there. After breaking 1.2945, this level became resistance and the pair dipped beneath 1.27 to close at 1.2710.

Technical lines for EUR/USD from top to bottom:

The level of 1.3380 is a minor pivotal line now once again. 1.3280 was the bottom in December and is important resistance.
Another line of concern is 1.3212 which held the eurusd from falling and transformed to resistance later on. A key resistance is at 1.3145 which was the lowest point seen in October was only broken for a short time from the other side.
1.3085 was the top boundary of a very narrow range that characterized the pair towards the end of the year 2011. It also provided support in December 2010 and had a pivotal character.
The 1.3000 is psychologically important and also worked as some support. After the breakdown, it was shattered. The fairly new low of 1.2945 is still vital and now as clear resistance.
1.2873 is the earlier 2011 low set in January, and still offer resistance. 1.2734 worked as support in 2010 and is the subsequent line below. It was broken late in the week, but already managed to provide resistance.
1.2640, is the next level of support, after providing support during the fall of 2010. A more vital line is 1.2587, the trough of August 2010. This line will be watched closely.
Even lower, 1.2520 is another slight support, before the round number of 1.2400, which was of importance in the past.
1.2330 is also an antique pivotal line and it now works as support. The last significant line for the week is 1.2144.

Downtrend channel
The downtrend channel we talked about last week can be seen widening, and is stronger now after downtrend resistance stopped a recovery effort. Downtrend resistance begins at October and has been widened to provide accommodation to the changes.

Still Remain bearish on Euro / Dollar
After two weeks of falls and severe short positioning, the euro may perhaps look a bit oversold. However, all the facts points lower. The ECB’s actions are not supporting the euro at this point. Greece is nearer than ever to default, with Prime Minister Papademos talking about it, and a haircut is too far and not sufficient. Italy’s yields are also high and the banks are too in danger.
S&P admits that its actions regarding France are inappropriate, but the threatening French downgrade certainly weighs on the Euro as well.