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The Week Ahead for the EUR: Sept 27th-Oct 1st

Courtesy of Pivotfarm

 

In the Eurozone, sovereign debt issues resurfaced with concerns about Irish and Portuguese debt. The weaker-than-expected Irish GDP data heightened fears that bank restructuring added further crippling weight to the government’s debt. Irish real GDP is currently 13% less than it was at its peak in the fourth quarter of 2007. Yields on Irish and Portuguese government debt climbed higher this week, while yields on Greek government debt remained elevated. Moreover, recent data from the euro area is consistent with a slow, albeit positive, GDP growth in the third quarter. Further evidence of slowing in the Eurozone is the decline in the manufacturing  and service PMI and mixed recent data from Germany.

 

Overall consensus: Bullish. Despite mediocre economic indicators in the Euroland, the situation is better than in the U.S.

 

The upcoming week has many employment and inflation figures, as well as speeches from Trichet. Here’s an outlook for this week’s events, and an updated technical analysis for EUR/USD.

 

Monday, September 27

 

At 03:00 EST the ECB President Trichet will hold opening remarks at the 13th Conference of the ECB-CFS Research Network on “Macro Prudential Regulation as an Approach to Contain Systemic Risk” in cooperation with the Center of Economic Policy and Research in Frankfurt. Volatility is often experienced during his speeches as traders attempt to decipher interest rate clues.

 

Meanwhile, the ECB will publish its monthly report on M3 growth for August. The amount of money in circulation dropped in recent months, signaling deflationary pressure. The year-over-year value was stable at 0.2% last month. The forecast is for a jump to 0.4% rise this time. It will be interesting to see what effect the euro debt crisis has had on the latest monetary developments.

 

Later on the day, the ECB President Trichet will hold another speech. This time he will be In Brussels to testify before the Committee on Economic and Monetary Affairs of the European Parliament. The head of the ECB will have a chance to lay out his prospects for the Euro-zone, discussing a possibility of recovery and maybe future moves on the rates.

 

Tuesday, September 28

 

Early on Tuesday, a measure of the German Consumer Climate for September will be published by the Gfk group. For this important indicator of financial confidence since more than 2,000 German consumers are surveyed. After the expected rise in August of 10 basis points, another increase is likely to follow turning the figure from 4.1 to 4.3 points.

 

The different German states will release their consumer price indices during the day, building up the initial release of German CPI. After an unexpected 0% last month, prices are predicted to decrease by  0.2% this time. Generally speaking, consumer price gains are expected to remain subdued in 2010 due to the weak growth prospects and, in particular, dull household spending. Germany precedes the all-European figure, making this figure important.

 

Wednesday, September 29

 

No major market moving events for the Euro.

 

Thursday, September 30

 

Germany will publish its unemployment rate and a report on the change of its unemployment figures for August.  The European’s largest economy has showed a positive decrease in the number of unemployed people –17,000 last month and 21,000 in the previous month. The figure is expected to continue its down trend, but a small increase is predicted this time, 20,000, putting other weight on the euro.

 

Following the German Preliminary CPI of last week, at 9:00 GMT the European CPI Flash estimate will be released by EuroStat. The Euro-zone’s annual rise in prices drop to 1.6% in August, but is expected to climb to 1.8% in September. Note that this is the initial release, the highest reading since the beginning of the financial crisis.

 

Friday, October 1

 

German Retail Sales will be published at 02:00 EST.  After a superb rise of 3% in June, this consumer figure has been decreasing for the last three month. This time an additional negative correction with a 0.1% drop is expected.

 

At the end of the upcoming week, the EU unemployment rate will be published, which stands around 10% in the past 6 months causing worries. The rate varies between Germany and France which have stronger economies, and countries like Spain, that has an unemployment rate of nearly 20%. The average 10% is expected to remain stable, which should be consistent with the PMIs released last week.  A drop under this double digit figure will be a great relief.

 

The Technical View

 

The Euro powered through the 1.3330-1.3340 Resistance, above this area the 1.3685-1.3695 area will provide an initial barrier followed by 1.3810-1.3825 providing an even heavier and more sustained resistance level. In terms of support the 1.3025-1.3035 looks to be a key level for the market. Adding to the pain for the bulls is the now confirmed break of a the medium term down trend. The next major (and final) bear trend line break will be the weekly trend line, with current momentum we should make a first attempt at that trend line around the 1.4200 mark.

 

What’s Important?

 

ECB President Trichet will be the man to watch this week with 2 speeches on Monday, the most important being his testimony before the Committee on Economic and Monetary affairs at 09:00 EST.

 

Key Words

 

Trichet, Gfk German Consumer Climate, German Unemployment Change.

 

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