Euro / Dollar Rate 5-Day Forecast has 1.0490 Lined Up

EUR/USD surged unexpectedly higher on Thursday, February 16 taking it to highs of 1.07 before the Dollar took back those gains ensuring the exchange rate ended the week in the 1.06s.

This price action tells us something about the relationship between the two - the Euro is unlikely to find any meaningful traction above 1.07.

We noted in a report last week that strength in the Euro is always likely to be merely corrective as opposed to the start of a sustained recovery.

Overall the pair looks like it is resuming the short-term downtrend which began at the late January highs, which would see it potentially fall back down to the 1.0490 level, just above the support barrier of the S1 monthly pivot.

A resumption would be confirmed by a break below the 1.0559 February 15 lows.

Thursday’s strong surge, however, is often a signal the trend is changing and taken together with a slightly bullish weekly chart means the is also a possibility of an extension higher.

Such a move would gain confirmation from a break above the 1.0700 level and probably extend up to 1.0800.

Forthcoming Data for the Euro

The big release for the Euro in the week ahead will be Eurozone manufacturing and service sector activity data in the form of PMIs for February at 09:00GMT on Tuesday, with consensus expectations for a modest decline.

Monday’s Consumer Confidence Flash estimate for February, however, is another significant event, which is expected to show a decline of -4.7 from -5.0 previously.

Wednesday's IFO survey data is a useful leading indicator for the whole of the Eurozone even though it is predominantly concerned with German business confidence.

The week rounds off with commentary from ECB’s Praet on Thursday, although, he is likely to maintain the dovish tone of the minutes.

There is a downside risk for the Euro, according to Kathy Lien, due to diminishing returns from the weak Euro and political risk.

“The benefits of a weaker currency are beginning to fade, which explains why the ECB remains cautious. According to the minutes released this past week, there was widespread support for a steady policy stance. With multiple elections happening in the Eurozone and the uncertainty surrounding the current US presidential administration, the central bank felt the need to maintain easy monetary policy,” said Lien.

Data for the US Dollar

The week kicks off with the release of Manufacturing and Services PMI in February, on Tuesday, February 21 at 14.45 GMT. If the releases continue in the footsteps of the previous week’s strong results there is a risk they will surprise to the upside.

Housing data and the FOMC meeting minutes are out on Wednesday at 15.00 and 19.00 respectively.

Existing Home Sales are expected to pop higher by 1.0% in January after declining -2.8% in the previous month.

Analysts, such as Kathy Lien of BK Asset Management, don’t see anything potentially market moving in next week’s data.

Michigan Consumer Sentiment and New Home Sales round off the week on Friday at 15.00, with the former expected to fall two basis points to 85.5 in February and the latter to rise 7.2% in January after declining a steep -10.4% in December. A downturn in housing would be a very negative indicator for the economy as it is one of the surest leading indicators.

“There's not much on next week's shortened U.S. calendar to help the dollar. U.S. markets are closed on Monday for Presidents Day. So while we believe that it is only a matter of time before the dollar resumes its rise, the bulls could be hanging back until President Trump announces his "phenomenal tax plan,” she commented on investing.com.