Euro-to-Dollar Rate Forecast for the Week Ahead: Key Levels in Focus as Technical Factors Dominate

-EUR/USD on front foot Monday amid sparse economic calendar. 

-Needs to achieve daily close above 1.2396 to avoid downard correction.

-Light calendar leaves Euro driven by global and technical factors

© Grecaud Paul, Adobe Stock

The Euro-to-Dollar rate has entered the week on the front foot after also having closed the previous week higher on Friday, although a relatively sparse economic data calendar and a range of technical factors could mean the exchange rate struggles to advance further over coming days.

EUR/USD was quoted 0.22% higher at 1.2357 during the morning session in London Monday after having closed the previous week at 1.2326, up from 1.2260 at the beginning of the week.

Above: Euro-to-Dollar rate shown at daily intervals.

Monday's price action comes as markets digest events over the weekend, which saw the US and allies launch a bombing raid on Syria over the government's alleged use of chemical weapons, which risked bringing coalition forces into conflict with the Russian contingent operating in the country.

It also comes as the exchange rate trades close to the key 1.2340 level that is techincally important for the market. EUR/USD must overcome the 1.2340 threshold and achieve a daily close above it in order to avoid a downward correction over coming days and weeks, according to multiple strategists.

"EUR was slightly firmer this morning but range remains subdued in 1.2322 – 1.2343. Pair was last seen at 1.2340 levels. Daily momentum and stochastics indicators show a mild bullish bias. Key area of resistance at 1.2340 - 60 levels still proving strong. Support seen at 1.2235, 1.22. Suggest intra-day range of 1.2310 – 1.2390," says Saktiandi Supaat, an FX strategist at Maybank, one of Malaysia's largest lenders.

Above: Euro-to-Dollar rate shown at daily intervals. Shows Commerzbank technical analysis.

"EUR/USD remains tightly range bound. We look for the cross to remain capped by the near term resistance line at 1.2435 and we should see it head back to the 1.2253 2017-18 uptrend line and the 1.2215 current April low. We preferably need to see a close below the 1.2155 February low to confirm a top formation," says Karen Jones, head of technical analysis at Commerzbank. 

Jones says the exchange rate will retain a downward bias until it is able to overcome last week's high at 1.2396. 

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Data and Events to Watch for the Euro

The economic calendar for the Euro area is sparse of major releases for the week ahead, leaving markets looking across the North Atlantic for their lead from a fundamental perspective.

The main release of note is the ZEW economic sentiment gauge due out on Tuesday at 10.00 GMT, which is expected to fall to 7.3 from 13.4 in February. This is considered a reliable forward indicator of economic growth in the region so is widely watched. If consensus is correct and the index falls then it is unlikely to prove positive for the Euro.

"Recall how last month we saw a sharp fall in investor sentiment (led by Germany) – which was chalked down to heightened trade war fears. The question is whether this was a major overreaction to Trumpian hype or whether the added mix of geopolitical risks has now further weighed on EZ investor confidence," says Viraj Patel, an FX strategist at ING Group. "If we were to see a bounce-back, it would be telling of how economic agents are willing to look through the external trade war and geopolitical noise – and focus on the (fairly) unchanged fundamentals."

The same gauge for Germany alone is forecast to enter negative territory, falling to -0.8 in March from 5.1 in February. This comes ahead of the meeting of the Eurozone finance ministers Wednesday.

Data and Events to Watch for the Dollar

The US economic calendar promises a full agenda for the week ahead, with the most significant numbers coming Monday when the Census Bureau releases retail sales numbers for the month of March at 13:30 pm. Markets are looking for retail sales to rise 0.4% during March, which would mark a recovery from their February contraction.

Also out on Monday is the NAHB house price index, which is forecast to rise a point to 71 in April from 70 in the previous period. In addition, the number of new housing starts is Tuesday at 13.30 and is expected to show construction of 1.27 million units in March. Consensus is for industrial production to rise 0.3% in March when released Tuesday.

The New York Fed and Philadelphia Fed manufacturing surveys, out Monday and Friday respectively, are forecast to show rises to 19.8 and 21.2 respectively in March. Additionally, the Fed will publish its regular Beige Book, which is an economic update, on Wednesday at 19.00.

The Dollar may also be impacted by geopolitical events, including the possibility of heightened tensions between the US and Russia in Syria. Trade relations between the US and China are also a risk, although they've improved since early last week when China's Xi Jinping hinted his government could make concessions to the White House. 

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