EUR/USD Outlook for Week of February 7th – 11th

NEW YORK (Forex News Now) – EUR/USD saw volatile trading again last week, as the rate rallied initially but then later gave back its gains to finish the week with little net change. The highlight of the week was the key U.S. employment data released during the latter half of the week which created significant price swings in EUR/USD.

EUR/USD analysis of Wednesday’s price action saw EUR/USD trade up to its weekly high point at 1.3861 before coming off after news came out that S&P cut Ireland’s credit rating from A to A- and warned of additional downgrade risk. On Thursday, EUR/USD started falling sharply in the wake of EZ Retail Sales coming out at a disappointing -0.6% compared with the expected rise of +0.6%. Also, the ECB kept its benchmark Minimum Bid Rate steady at 1.0%, and ECB President Trichet commented that inflationary developments remain “in line with price stability over the policy-relevant horizon.”

Friday’s session saw EUR/USD continue its slide in active currency market trading, making its weekly low of 1.3543 ahead of U.S. Non-Farm Payrolls which came out at a disappointing +36K, considerably lower than the +138K that was expected, although the previous number was revised significantly higher from +103K to +121K, which dampened the negative effect. Nevertheless, the Greenback derived support from an unexpected drop in the U.S. Unemployment Rate to 9.0% from 9.5%.

EUR/USD closed last Friday at 1.3586, exhibiting an overall decline of just -0.2% versus its previous weekly close. At the EU Economic Summit in Brussels held over the past weekend, Germany and France introduced a proposal intended to stimulate the more challenged Eurozone economies.

Technical Outlook for EUR/USD

Intraday analysis of EUR/USD’s price action last week shows the pair rising to a mid week peak at 1.3861 last Wednesday, before then falling back to Friday’s low point of 1.3543 and closing at 1.3586.

The rate managed to make another fresh recent high and sustained gains and its weekly closing level over the key psychological 1.3500 level. The rate also continues to trade significantly above its key 200-day moving average, which now comes in at the 1.3085 level. The indicator is now displaying a slightly positive slope, yielding a mildly bullish medium term outlook for EUR/USD.

Nevertheless, although the rate’s 14-day RSI approached overbought territory initially last week, that indicator has since corrected lower to conclude the week at the 54 level and well back into the central part of neutral territory. This should not significantly impede future price action in either direction over the coming week.

Initial support for EUR/USD shows in the 1.3523/60 region and key 1.3420/98 region around the psychological 1.3500 level, and below that at the 1.3395 level and at 1.3314 ahead of additional psychological support seen around the 1.3000 level. Resistance is seen initially at 1.3636, and then above that at 1.3757 that falls within the broader 1.3697/1.3775 congestion region. Above that, resistance shows at 1.3861 and at 1.4043.

Top Economic Events to Watch for This Week

1. U.S. Trade Balance – One of the key economic numbers watched by the forex market, this Friday’s U.S. Trade Balance release is expected to show that the U.S. trade deficit widened to -$40.4 Billion from the -$38.3 deficit seen the previous month. The release of this number often results in considerable intraday exchange rate volatility in the forex market that calms down shortly afterwards. Accordingly, a forex binary option At-The-Money straddle or Out-of-The-Money strangle purchased shortly before this key number’s release could be used to profit from a significant move in either direction with a limited risk of loss. Interested in learning how to trade economic events with forex binary options? Click here.
2. ECB President Trichet Testifies – Jean-Claude Trichet is scheduled to testify before the European Parliament in Brussels on Monday. Forex market volatility is often seen during his testimony as traders review interest rate related comments. Hawkish comments will usually result in a rise in the EUR/USD exchange rate.
3. Fed Chairman Bernanke Testifies - Federal Reserve Chairman Ben Bernanke is scheduled to testify on the economic outlook, as well as monetary and fiscal policy in Washington D.C. before the House Budget Committee on Wednesday. Hawkish comments will tend to see EUR/USD fall.
4. ECB Monthly Bulletin – Thursday will see the ECB release its Monthly Bulletin that details statistical information that the ECB Governing Board reviewed when making its most recent interest rate decision. It also offers an analysis of present and upcoming economic conditions, so any change in conditions will be closely scrutinized by the forex market.
5. Preliminary U of M Consumer Sentiment – The University of Michigan is due to release the preliminary version of its closely watched consumer sentiment index on Friday that is expected to rise to the 74.6 level from the 74.2 level seen last month. The index is based on a survey of 500 consumers that rate the relative state of present and future economic conditions in the United States. This important composite index is considered a leading indicator of consumer spending that makes up the lion’s share of economic activity. A level better than expected tends to be good for the U.S. Dollar and so would put pressure on EUR/USD.

Outlook Summary

EUR/USD analysis shows that the rate has risen considerably over the past three weeks in relief over recent favorable EZ debt auctions and hawkish comments from the ECB. The rate has traded notably higher from the 1.2873 level seen on January 10^th to the 1.3861 level seen on February 2^nd.

Nevertheless, EUR/USD’s subsequent correction down to the 1.3507 level seen today — that almost touched the 38.2% Fibonacci Retracement level of the aforementioned rally — came after last week’s Ireland downgrade by S&P and worse than expected EZ Retail Sales numbers.

Overall, this scenario argues for a pause in the Euro’s recent rally during this coming week as the market consolidates recent gains.