The Euro-to-Dollar Rate's Week-Ahead Technical Forecast: Looking Bullish, Inflation Data Due Mid-Week

The Euro-to-Dollar exchange rate has been rising up within a channel and looks poised to breakout even higher over the next five days.

Currently, the exchange rate is being held back by a triumvirate of obstacles including the upper border of the channel, the monthly pivot (PP) and the 50-day moving average (MA) all clustered around the 1.1850-75 level.

We, therefore, think there is a chance of the exchange rate breaking higher and offering Dollar buyers a better price down the road.

Although the pair pulled back on Thursday the correction was quite shallow and has not invalidated the possibility of a breakout higher eventually - indeed it is recovering strongly at the time of writing on Friday, October 13.

The interesting, bullish pattern on the MACD momentum indicator, also suggests more upside on the horizon.

The MACD has fallen in a 'measured move' or a-b-c-d pattern down from the early August highs.

This pattern now looks complete because wave c-d is a similar length to a-b; also the MACD is crossing its signal line and turning higher, indicating the underlying asset will also probably move higher too.

It is quite common and acceptable for technical analysts to use price patterns on indicator charts such as the a-b-c-d on MACD.

Of course, the pair could continue sliding lower within its channel and we would only expect a move up to 1.2000 if the exchange rate successfully broke above the 1.1885 high and provided confirmation first.

Get up to 5% more foreign exchange by using a specialist provider by getting closer to the real market rate and avoid the gaping spreads charged by your bank for international payments. Learn more here.

The Euro’s Big Data Event: Inflation

The headline event for the Euro on the data calendar comes mid-week with the release of Eurozone inflation numbers.

Annualised CPI inflation for September is forecast to read at 1.5%, in line with the previous month’s read.

The implications for the Euro of the data follows a similar logic to the relationship which exists between the Pound, Bank of England and UK inflation data.

However, in the case of the Euro and the European Central Bank, inflation remains stubbornly below the 2.0% target which disallows the ECB from pursuing interest rate rises in the near-future.

However, there is the calculation that inflation is headed higher and the ECB will be allow to withdraw monetary stimulus in the form of quantitative easing. Markets reckon a call on ending this Euro-suppressing programme in either October or November.

This assumption has been behind the Euro’s rally through the course of 2017 and should inflation data read more-or-less around the 1.5% mark this narrative is likely to remain intact this week.

Only a drastic slip in inflation will undermine the Euro recovery we believe and any significant beat on expectations will surely fan the fire under the Euro.

US Data Points and Events to Watch

Federal Reserve speakers are on tap this week to drip-feed views into the debate that exists as to when the Fed will raise interest rates next, and how many interest rate rises will be delivered in 2018.

Questions on interest rates are a key driver of the Dollar at present and for further upside to be delivered we would need to receive indications that the Fed is confident enough to pursue a steady rate of interest rate hikes over coming months.

Chair Janet Yellen is on a panel with other global central bankers on Sunday morning then gives a lecture late Friday.

On Wednesday, FOMC voters Dudley and Kaplan jointly discuss regional development; policy topics could come up in the Q&A. Mester (2018 voter) discusses global regulation Friday afternoon.

“Any mention of changes to the Fed’s inflation outlook by any of these speakers could be market moving,” says a briefing note from TD Securities.

Last week’s release of the minutes of the Fed’s last policy meeting showed some policy-setters are concerned that the forces holding inflation down may not prove transitory.

“The slightly dovish bias helped turn the dollar and bond yields lower, while helping take equity indices to new highs, though momentum was fading as the week progressed,” says Kit Juckes, a currency analyst at Société Générale S.A.

Data-wise, we have a scattering of second-tier data to keep an eye on:

Monday brings the release of the New York Empire Manufacturing Index which is forecast to read at 20.70.

Industrial production data are due on Tuesday, with a reading of 0.2% forecast by analysts.

Building permits are due mid-week with a reading of 1.25M forecast.

The Philadelphia Federal Reserve manufacturing index is updated on Thursday and markets will be looking for a reading of 22.

Finally, on Friday, existing home sales data are forecast to deliver a reading of -0.9%.