EUR/USD made
an impressive breakout to 8 month highs, but eventually lost most of the gains
as new worries limited the Santa Rally. The upcoming week is relatively light
with planned events, but as we’ve seen, volatility can pick up in illiquid
markets. Here is an outlook on the main market-movers this week and
an updated technical analysis for EUR/USD.
Last week German IFO Business Climate edged up from 101.4 to 102.4 points, rising above the 101.9 points
expected. This was the second increase indicating Germany may lead the EU
recovery next year. The Bundes bank
foresees growth in the first quarter and further improvement in the coming months.
Will this positive trend continue? In the US, the fiscal cliff progress gave a boost to the pair and the
failure of Plan B took it away. This theme will
continue rocking the markets. Remember that market activity will be extremely
low up to Thursday.
EUR/USD daily graph with support and
resistance lines on it. Click to enlarge:
1.French Consumer
Spending: Friday, 7:45. French consumer spending declined in October
by 0.2%, after remaining flat in the previous month. The reading was broadly In
line with forecasts. On a yearly base, household spending decreased by 0.5% in
October, which was also in line with expectations. Consumer spending in France
proved strong and contributed to the unexpected 0.2% growth in gross domestic
product. A flat reading is expected.
2.Retail PMI: Friday, 9:10. The Euro zone retail sector continued to contract in November
reaching 45.8 from 45.3 in October. Sales declined for the thirteenth
consecutive month, remaining well below the level seen one year earlier.
However despite the ongoing declines, French retailers registered the slowest
fall in sales since June. The holiday season will be crucial for retailers this
year.
*All times are GMT.
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EUR/USD Technical Analysis
€/$ started the week by grinding upwards, but a convincing break of the
1.3170 line (mentioned last week), took some time. When
this happen, the pair shot up and peaked at 1.3308 before sliding back down.
Technical lines from top to bottom:
In the distance, 1.36 was a cushion in the fall of 2011 and then switched to
resistance. 1.3480 was the peak seen in February and provides a significant
backstop to 1.340.
1.34 was a stubborn cap during the spring of 2012 and is the far line in the
distance. The next stepping stone is at 1.3350, which worked as a pivotal line
in the past.
Below, 1.3290 served as resistance before the pair collapsed in May, and
despite a small breakout in December, the line remains intact. 1.3240 is now a
pivotal line in the middle of December’s high range. It separated trading
zones.
1.3180 now replaces 1.3170 after the latter was broken. After the breakout
of the long standing peak and double top, 1.3180 served as support. 1.3130
proved to be strong resistance during December 2012 and now switches positions
to support.
1.3110 is a minor line after working as temporary resistance in December
2012. 1.3030 provided some support at the same period of time, and also at the
end of November 2012. Both are minor in comparison with the next line.
The very round 1.30 line was a tough line of resistance for the September
rally. In addition to being a round number, it also served as strong support.
It recently worked as a battleground and the pair is now ready for another
battle around this line. It is closely followed by 1.2960 which provided some
support at the beginning of the year and also in September and October – the
line is strengthening once again after temporarily cushioning the fall during
December.
1.2880 provided some support in October and also in late November and
December. It proved to be a backstop on the initial false rally after Obama’s
victory. 1.28 is the bottom border of the range, and was eventually left
behind. The pair fell to this low in September and later got close to it.
1.2750 capped the pair after the Greek elections and also had a similar role
in the past. It is now a pivotal line in the range. 1.2690 was the new low
after the November breakdown, and also provided support on a second downfall
attempt in November 2012.
1.2624 was the low in January and now serves as weak support,1.2590 was a
cap during August, before the pair surged.
Below, the round number of 1.25 is not only of high psychological
significance (USDEUR 0.80) but also worked as support during the summer of
2012. 1.2440 is already a stronger line, that was a clear separator during
August.
Long Term Downtrend Resistance Weakening
The line extending from the 2011 peak of 1.4940 (a green line on the chart)
was breached during the first week of December, is left for reference.
I remain bullish on EUR/USD
The Santa Rally that the pair
enjoyed didn’t fully materialize due to eruption of a new blame game in Washington.
However, the sides are not that far, and are likely to do what they always do:
cut a last minute deal. If not a full deal, we could get significant
improvement in negotiations, and this will weaken the dollar. Also the many
positive signs
from the US certainly help the “risk on” environment – dollar selling, as seen
throughout most of the post financial crisis period.
Regarding Europe, the economy is still suffering,
but the debt crisis is now on hold for the holidays. We could see a resumption
of drops later on.
