Euro-Dollar: Technical Forecast, Data and Events to Watch in the Coming Week

The Euro retains a constructive tenor against the US Dollar but we note EUR/USD might struggle to clear the 1.20-1.2060 region. Much will however depend on German coalition talks this week as well as fresh political uncertainty in the U.S.

The Euro-to-Dollar exchange rate appears to have resumed its uptrend on the daily chart and is rising up towards the 1.2094 September highs.

A break above the 1.1962 September 27 highs would lead to a move up towards a target at 1.2060 where the R1 monthly pivot is situated.

The monthly pivot is likely to act as an obstacle to further upside, due to more sellers entering the market at that point to book profit or enter counter-trend trades in anticipation of fellow market participants adopting similar technically-inspired strategies.

The MACD momentum indicator continues to climb above the zero-line, further supporting more upside.

The pair had been in a strong uptrend since finding a bottom at the January 2017 lows. 

This is clearly visible on the weekly chart below, which shows the pair rising up in an uninterrupted rally till it reached the September highs at 1.2094.

Following that, the pair started a correction back down to 1.1600.

It then reversed at the November 7 lows and started to rise again, in the new short-term uptrend it is currently in, which is forecast to extend up to 1.2060 in time.

However, a number of analysts are wary of the Euro's ability to cross the 1.20 level citing it as a major source of resistance.

"The technical chart should not be lost sight of. The Euro continues in the short-term uptrend. However, the Stochastic confirms its sell signal and the repeated failure of the Euro at 1.20 leaves little doubt about the sustainability of the upward trend rise," says a note from German bank Helaba, based in Frankfurt.

Data and Events for the Euro

Euro strength is the theme to respect at present as the single-currency is up against all major G10 competitors, not only on December 4 but over the course of the past month.

And we can report that more strength can be expected with analysts at global investment bank Morgan Stanley saying the Euro "is poised to break higher, even if the ECB may not be rushed to tighten policy."

Morgan Stanley say the Eurozone's economic growth simply cannot be ignored and it is driving investment returns higher, this is attracting inflows from all shades of investor types.

Furthermore, signs of progress in forming a coalition government in Germany might provide and additional near-term push for the currency.

"Germany's Chancellor Merkel attempting to renew the "Grand Coalition" with the SPD may lead to more fiscal expansion in Germany and make it more supportive of pro-integrative European reforms. We
expect EUR to outperform the G10," says Hans W. Redeker, Strategist with Morgan Stanley.

One of Merkel's closest allies, the head of the Christian Social Union (CSU) Horst Seehofer is under attack from members of his own party who want to oust him and replace him with Markus Söder who would be much less supportive of a coalition with Merkel.

The CSU is scheduled to vote on the matter on Monday, which although it cannot legitimately replace Seehofer, could force him to resign.

The other touch-point on the calendar for German politics is likely to be Thursday, December 7, when Merkel will sit down for talks with Martin Schultz the head of the SPD, the other large party earmarked for coalition; if he is still the leader of CSU, Seehofer, will also be present.

From a hard data perspective, Services PMI for November is out at 9.00 GMT on Tuesday, December 5.

The data is made up of responses by key managers in the Services sector and provides a leading indicator of the health of the sector.

Eurozone Services PMI is expected to remain unchanged at 56.2.

Also out on Tuesday is Retail Sales for October at 10.00, which is forecast to show a -0.7% fall - a considerable slowdown from the 0.7% of the previous month of September.

On Thursday at 10.00 Q3 GDP results will be released, however, these are the second estimates and unlikely to differ markedly from the first estimates which showed growth of 2.5% compared to Q3 in 2016 and 0.6% compared to the previous quarter.

Data and Events for the Dollar

As is the case with most currencies now, the most significant factor for the Dollar in the week ahead may be political in nature, as important new tax reform legislation moves closer to approval and the investigation into whether President Trump abused his position to obstruct the investigation into his special advisor General Flynn increases the heat on his leadership.

The new tax reform bill is one step closer to implementation after the Senate narrowly voted to approve their version of it.

This now means the two houses have voted through their own draft versions but the two versions (which are different) next need to be harmonised before they can get final approval, so although the Senate vote helped push the Dollar higher at the end of last week, we are not there yet on tax cuts.

As far as Trump's leadership goes, he is now under investigation for obstructing an investigation into whether his advisor Michael Flynn had improper links with the Russians.   

It now appears Flynn did have close ties with the Russians and if it transpires Trump unlawfully obstructed the earlier investigation there is a risk he could be impeached.

Clearly this would cause huge uncertainty, probably kill tax reform dead in the water, and probably lead to a sell-off in the Dollar, although it's now rather a moot point whether Trump is a positive or negative influence on the Dollar; from being clearly beneficial at the start of his campaign, the Dollar has lost ground since he actually assumed office.

Meanwhile, on the hard data front, the big release in the coming week will be Non-Farm Payrolls, which are out on Friday.

They are expected to show a continued improvement.

"Non-farm payrolls are expected to rise by nearly 200K, which is a good number even if it is lower than the previous month but the key will be wage growth, which is expected to rebound after stagnating in October," says BK Asset Management Managing Direct Kathy Lien.