The bears were certainly back in town for the Euro, news out of Europe has been mixed. German macro data has been disappointing, showing that the overall euro area is entering a period of weaker growth. Also this past week, some European peripheral countries, and especially Portugal, Ireland, Spain and Greece, saw a rise to record levels in their 10-year bond and CDS spreads. According to a WSJ report, the European stress tests results released by the CEBS in July may have understated some holdings of sovereign debt. Confirming this fact is the announcement given by the German banking association that Germany's 10 biggest banks may need EUR105bn of additional capital under Basel III rules. Moreover, the Government in Ireland decided to split Anglo Irish Bank into a “good” and a “bad” bank, as the recently nationalized bank asked taxpayers for an additional capital requirements of €25bn early in the week. All these facts didn’t help the Euro and highlighted how the structural vulnerabilities of the European peripheral countries remain present.
Overall consensus: Slightly bearish as renewed debt crisis fears reappeared in the market. In addition, the Basel meeting of this weekend could pose a risk to the euro as tighter capital requirements are likely to be set in the new Basel III framework.
Here’s an outlook for the major events that await the Euro this week and an updated technical analysis for EUR/DOL. In the euro area it will be a quiet week in terms of data, with the most interesting release being the German ZEW.
Monday, September 13
Non major market moving events for the Euro.
Tuesday, September 14
The Eurozone starts the action off at 05:00 EST when the Center for European Economic Research will publish the German ZEW Economic Sentiment for September. This leading indicator of German economic health dropped sharply in recent months. 350 German institutional investors and analysts sent the indicator down from 21.2. to 14 in August. The score is expected to slide down to 11.3 now. As Germany tends to lead the Eurozone economy, the German ZEW score has a stronger impact, and will rock the Euro. Despite the overall negative consensus, analysts in the market flag that there is a pretty good chance that we get a positive surprise since sentiment seems to have has improved notably due to US data getting better. Likewise, the all-European figure is expected to fall from 15.8 to 14.9.
Later in the day, we get the first look at Q3 output data when July Industrial Production (IP) for the Euro-zone will become available. Despite the sovereign debt situation in some European countries, the economic data out of the Eurozone are consistent with the overall outlook for slow recovery to continue. Industrial production data were stronger in the second quarter, though output slipped at -0.1% in June. A modest rise of 0.2% is expected this time. The figure tends to have a relatively mild impact because Germany and France released earlier their production data. However, the EU Industrial Production release still surprise and move the Euro.
Wednesday, September 15
Also in the Eurozone are final inflation data for August. Prices were flat in June and July, while are expected to have slipped a bit in August, though inflation remain on the rise on a year-over-year basis. This figure is considered the Eurozone's most important inflation data because it is used as the central bank's inflation target. However, it tends to have a relatively mild impact as the CPI Flash Estimate and German Prelim CPI are released about 15 days earlier. The annually adjusted rise of 1.6% for the overall CPI is expected to be confirmed, whereas the Core CPI is expected to be revised from 1.0% to 0.9%, with the energy contribution to go slightly down and food price inflation to move up.
Thursday, September 16
Non major market moving events for the Euro.
Friday, September 17
Friday finishes the week with German producer prices for August as well as EMU current account for July.
Published at 02:00 EST, the German Producer Prices Index has a forecasted value of only 0.3%. This is a modest weakening from the 0.5% of July, and it will pare back the rise seen in the previous two months. This is a good news for price stability.
Following the trade balance released on Thursday, the European Central Bank will publish the value of current account. This figure is going to be disappointed also this time. Its expected negative figure indicates that more goods and services, income fows, and unilateral transfers were exported than imported during July. However, the drop will be milder than the fall of the previous two months as the deficit is expected to squeeze from 4.6B to -3.7B this time.
The Technical View
This week the EURUSD made an effort to 1.2921-1.2931 Resistance area, this area has proven to be a very strong resistance area in recent weeks and this strength remains. The failure of the bulls at this resistance sets up a bearish continuation if the bears can take us below 1.2587 with strength. This area is also the 50% retrace from the June lows. This view will further compounded if the 1.2460-1.2480 support level is broken.
The Euro is at a key juncture technically in the long term and overall down trend remains intact, bullish strength in this area especially through the 1.2921-1.2931 area will help break the bearish technical structure. However we feel that the bearish structure has the highest probability of confirmation in the medium term.
What’s Important?
The German ZEW figures will be the key news event of the week, 1.2921-1.2931 the key resistance and 1.2587 important support area. The bearish technical structure remains intact.
Key Words for the Week
German ZEW, 1.2921-1.2931 Resistance, 1.2587 Support
Pivotfarm – The Home of Support and Resistance Trading