EUR/USD Exchange Rate Cements Levels Above 1.11, Another Bounce Ahead?
The euro exchange rate complex remains well supported, but we question the extent to which the currency can further its gains.
"I would expect a break above the current 1.1247 highs to confirm a move up to 1.1296."
The shared currency starts the new week from a position of strength and is looking to force sterling below a key support level while breaking into a new and higher range against the US dollar.
However, the rally against the dollar has cooled somewhat as heavy market selling and fresh concerns over peripheral Eurozone debt emerge once more.
Nevertheless, these conditions are biased heavily in favour of the euro when contrasted to sterling.
At the time of writing the euro to pound sterling exchange rate is seen at 0.7757 on the wholesale markets with banks now seen offering payments in the 0.7374 region while independent specialists are quoting closer to the actual market at 0.7621.
The euro to dollar exchange rate is back below 1.12 however at 1.1145, bank payments are in the region of 1.0708 and independent FX specialists are seen quoting above 1.10.
“There has been little change in the technical setting for EUR-USD. MACD and DMI are still in buy mode and n chances therefore remain for renewed firming. Our favoured trading range: 1.1100 - 1.1320,” says Ralf Umlauf at Helaba Bank in Frankfurt.
Eurozone GDP Will be Key to February Trade in the Euro
The main data release for the euro in the week ahead is the initial estimate for Q4 Euro-zone GDP, on Friday.
The release will be followed carefully as it will be a bell-wether of how the ECB is likely to conduct itself at the vaunted March meeting.
Currently analysts expect the growth rate to slow-down to 0.2% in Q4 from 0.3% in Q3 (and 0.4% in Q2, and 0.5% in Q1).
“Fundamentals argue for a higher EUR-USD; indeed the cross broke the 1.08-1.10 range (now at 1.12) that has been of reference since the ECB under-delivered in December. That said, we expect a bumpy road ahead and, in the near term, rallies look likely to be capped as ECB FX rhetoric looms,” says Roberto Mialich, FX Strategist at UniCredit Bank in Milan.
Clearly, with expectations of more accommodation running high, any slide in GDP would be expected to provide a deciding factor in whether the ECB will push the button and lead to a probable strong sell-off in the euro.
Latest Pound/Euro Exchange Rates
  | Live: 1.1452▲ + 0.08%12 Month Best:1.2162 |
*Your Bank's Retail Rate
| 1.1063 - 1.1108 |
**Independent Specialist | 1.1292 - 1.1337 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
In its January meeting statement, the ECB expected growth to remain robust in the last quarter of the year, so a below-expectations result for Q4 – of say 0.1% or lower – would have a very negative impact, particularly as compared with the ECB’s optimistic expectations, based on strong December data:
“The most recent survey indicators, available up to December, point to ongoing real GDP growth momentum in the fourth quarter of last year.
“Looking ahead, we expect the economic recovery to proceed.
“Domestic demand should be further supported by our monetary policy measures and their favourable impact on financial conditions, as well as by the earlier progress made with fiscal consolidation and structural reforms.
“Moreover, the renewed fall in oil prices should provide additional support for households’ real disposable income and corporate profitability and, therefore, for private consumption and investment.”
Other Data During the Week:
In addition to GDP other data for the euro-zone includes German Industrial Production and Euro-zone Sentix Investor Confidence on Monday.
Then German Trade Balance on Wednesday, followed by German CPI on Friday (0.5% prev).
German CPI always comes before Euro-zone CPI, and can give a heads up as to how the Euro-zone figure is likely to come out, therefore it may well be closely followed by market-watchers.
Pound v Euro Technical Outlook
The persistent down-trend has resumed.
Although momentum and volume are not particularly bearish, I expect the exchange rate to go continue lower.
A view of the weekly chart makes it clear why – there is a large head and shoulders along the top, which has breached its neckline.
Last week’s recovery moved was a throw-back to the neckline, before an air-kiss goodbye and move lower again.
This is a classic move signalling a continuation of the down-trend.
Furthermore, MACD is very bearish on the weekly chart, and supports further downside.
The minimum expectation is the 61.8% Fibonacci extension of the height of the H&S at 1.2630, which is also the level of the 200-week MA.
However, the S1 Monthly Pivot at 1.2809 is another strong support level standing in the way, and constitutes the first target to the down-side.
For confirmation of a move to 1.2809, I would wish to see a break below the 1.2893 lows.
Further, a move below the 1.2750 level would probably signal a further move to the eventual target at 1.2630.
Euro v US Dollar Technical Outlook
By breaking out from its January consolidation and moving rapidly higher following poor US Non-Manufacturing ISM data, the EUR/USD started the final ‘C’ leg of an A-B-C correction which started at the December lows.
It has risen up a fair way but it will probably go even higher, as wave ‘C’ is normally at least 61.8% of ‘A’ which gives a minimum rate expectation of 1.1296.
The pair has currently lost ground on marginally positive payrolls data which showed a unexpected rise in wages of 0.5% (exp 0.3%) and a fall in the overall Unemployment Rate to 4.9%.
However, the headline payrolls number was significantly lower than expected so the data may be unlikely to move the dollar much further.
It has currently fallen to the R2 Monthly Pivot at 1.1115, where it is finding support, from which it might launch a resumption of the breakout mini up-trend.
Therefore, I would expect a break above the current 1.1247 highs to confirm a move up to 1.1296.
The strong MACD cross above the zero-line is a further bullish sign supporting more upside.
