EUR/USD sustained its worst week since September, declining 1.1 percent. This week’s key events are German and eurozone GDP. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.
Soft data out of Germany and the eurozone weighed on the euro. Eurozone retail sales plunged 1.6% in January, its worst reading since December 2013. German manufacturing reports headed lower, raising concerns about the health of the eurozone’s largest economy. Factory orders slipped 1.6%, a second straight decline. Industrial production declined 0.4%, its sixth decline in seven months.
The European Commission economic forecasts projected moderate growth in the eurozone for 2019, but warned that significant uncertainties lie ahead. The bank revised downwards its growth forecast for the eurozone to 1.9% in 2018, from 2.1% in the November forecast. For 2019, the growth forecast has also been revised down to 1.5%, compared to 1.9% in the November forecast. Inflation slipped in late 2018 due to lower oil prices, with an average inflation level of 1.7%. Inflation is expected to dip to 1.6% in 2019. The report highlighted Brexit and the slowdown in China as key sources of uncertainty for European economies, adding that the projections were subject to downside risks.
EUR/USD daily chart with support and resistance lines on it. Click to enlarge:
- Eurozone Industrial Production: Wednesday, 10:00. The global trade war has dampened the eurozone manufacturing sector, and industrial production plunged 1.7% in November. Another decline is expected in December, with a forecast of 0.4%.
- German Preliminary GDP: Thursday, 7:00. GDP slipped 0.2% in the third quarter, shy of the estimate of -0.1%. The indicator is expected to rebound in Q4, with a gain of 0.1%.
- Eurozone Flash GDP: Thursday, 10:00. The eurozone economy has been slowing, and GDP fell to 0.2% in the third quarter. Another gain of 0.2% is projected in Q4.
- Italian Trade Balance: Friday, 9:00. Italy’s trade surplus improved to EUR 3.84 billion in November, crushing the estimate of EUR 2.89 billion. The estimate for December stands at EUR 3.47 billion.
- Eurozone Trade Balance: Friday, 10:00. The trade surplus jumped to EUR 15.1 billion in November, well above the forecast of EUR 13.2 billion. The upward trend is expected to continue in December, with an estimate of EUR 16.4 billion.
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar posted daily losses every day last week and broke below support at 1.1345 (mentioned last week), at the end of the week.
but could not hold onto its gains and fell back into range.
Technical lines from top to bottom:
1.1620 was a peak in the autumn and is the next line if the pair breaks above 1.1570, which was a swing high in the wake of 2019.
1.1515 was a high point at the end of January. 1.1435 was a low point at the beginning of February.
1.1390 was a stepping stone on the way up in late January and capped EUR/USD earlier. 1.1345 was a swing low in mid-January.
1.1290 was a low point around the same period of time. 1.1270 was a double-bottom in December 2018 and the 2018 low of 1.1215 is next.
This is followed by 1.1119. The final support level for now is 1.1046.
I am bearish on EUR/USD
The German and eurozone economies continue to produce weak numbers, underscored by weak scores in retail sales and manufacturing. Concerns over Brexit and the Chinese slowdown are likely to continue weighing on the euro.