Euro-Dollar: Technical Forecast, News and Data for the Coming Week

The Euro to US Dollar exchange rate extends its rally following comments from the president of the European Central Bank (ECB), Mario Draghi, that the region was in better economic shape than previously imagined.

Markets quickly latched onto the comments as a signal that the ECB was nearing a point where discussions over how the Bank winds up its expansive balance sheet escalate.

EUR/USD has now reached highs of 1.1448, and the uptrend is forecast to extend yet further despite running into some formidable resistance.

A major trendline is capping gains at 1.1435 and the R2 monthly pivot is situated at 1.1545 – but, somewhere between those two levels is space for traders to make gains.

The pair has been rising in a channel since before April, and the only sign the uptrend may be lagging is the radically reduced momentum.

Note how the MACD is at a lower level at the current peak than it was at the previous peak at the start of June; this indicates declining momentum, however, this is not enough of a signal to suggest the end of the uptrend.

It is, however, possible that the pair may stall and begin going sideways at the current level, especially given the substantial resistance from the trendline above.

A deep correction is not, envisaged since the R1 monthly pivot is situated at 1.1390 and is likely to provide underpinning support for the pair going forward.

Pivots are levels on charts which traders use to time counter-trend trades, which result in the exchange rate often stalling at the level of the pivot – and sometimes even reversing trend.

Ultimately, we see a move higher as the most probable next move as the pair is now in an established uptrend.

Such a move would gain confirmation from a clear break above the trendline at 1.1475 to a target initially at 1.1545, just below R2.

Data for the Euro

The main release for the Euro are the minutes from the European Central Bank (ECB) meeting in June, out on Thursday, July 6 at 12.30 BST.

There will be much focus on the extent to which the governing council discussed winding down – or ‘tapering’ as it is known – monetary stimulus.

ECB president Draghi let the genii out of the bottle last Tuesday at the central banking conference in Sintra, when he suggested stimulus didn’t need to be as substantial as it had been going forward, and now we shall see how representative these comments were of the whole council.

Outright discussions of tapering are not likely and so moves in the Euro may be muted following the minutes’ release.

“Draghi said though that the ECB did not discuss tapering at this meeting, so markets probably won’t get more insight into what they really want to know heading into the autumn and the expected 2018 tapering decision,” said TD Securities.

Other major events include the Bundesbank President Wiedmann’s comments today.

Weidmann is against stimulus and so is expected to continue to argue for a reduction as soon as possible.

Eurozone Manufacturing PMI is out on Monday morning at 09.00 BST and is likely to remain unchanged at 57.3 in June.

Services PMI is out at the same time on Wednesday and is also expected to stay unchanged at 54.7.

Eurozone unemployment in May is out on Monday at 10.00 and is forecast to show a further reduction to 9.2% from 9.3% previously.

Eurozone Retail Sales in May is out on Wednesday morning at 10.00 and is forecast to rise by 0.3% from 0.1% in April.

Overall if investors see a continuation of the slow and steady growth trajectory they will continue to invest in the region, leading to an appreciation of the Euro.

Data for the Dollar

The US labour survey, including Non-Farm Payrolls (NFPs), is the main release in the week ahead.

It is scheduled for release on Friday, July 7, at 13.30 BST.

The current consensus forecast is for a 177k rise in payrolls in June from 138k previously.

The Unemployment Rate is expected to stay the same at 4.3%.

Average Hourly Earnings, important because it is a lead on inflation, is forecast to rise 2.6%.

Investment bank TD Securities see marginal downside risks for payrolls, predicting a 170 result, and marginal upside for earnings of 2.7% rather than the market consensus of 2.6%.

TD think the Dollar could rally if wages surprise to the upside as it will indicate potentially higher inflation and interest rates.

“We think wage growth will ultimately drive the market response due to weak inflation concerns. Calendar effects suggest a strong 0.3% AHE print boosting the y/y pace to 2.7%, with upside risks. ‎We forecast a stable u-rate at 4.3%, with a risk lower,” said TD.

With so much emphasis on what central banks are planning on doing, the minutes from the Federal Reserve’s June meeting, released at 19.00 on Wednesday, July 5.

This could be a bullish release for the Dollar if the Fed continues in its recent optimistic and hawkish refrain.

It’s a busy week for the Dollar, as Monday, July 3, at 15.00 sees the release of ISM Manufacturing, which is forecast to 55.2 from 54.9.

Factory Orders are released on Wednesday at 15.00 and expected to show a -0.5% fall in May, which would be deeper than the -0.2% of April.

Thursday sees the release of ADP Non-Farm Payrolls which is often held as a heads up for NFP’s on the Friday but which, in reality, shows little correlation.