Posted: 31 Jul 2010 05:00 AM PDT

The rate decision stand in the center of a week full with economic indicators. Here’s an outlook for the European events and an updated technical analysis for EUR/USD.

EUR/USD daily chart with support and resistance lines on it. Click to enlarge:

The Euro edged up in the past week, but did it with hesitation. It’s still too dependent on US weakness to rise. When more credit rating issues appeared in Spain, it took a breather. Will it make an impressive breakout this week, or will the rally end? Let’s start:

Final Manufacturing PMI: Published on Monday at 8:00 GMT. Purchasing managers in Europe’s manufacturing sector were more optimistic according to the initial release, sending the score from 55.6 to 56.5 points. This will probably be confirmed now.
PPI: Published on Tuesday at 9:00 GMT. Friday’s CPI Flash Estimate saw inflation rising at an annual pace of 1.7% – advancing but falling short of expectations. Also producer prices are expected to be on the rise – from 0.3% to 0.4%. Only a more significant rise will cause inflationary fears.
Final Services PMI: Published on Wednesday at 8:00 GMT. Also the purchasing managers in the services sector became more optimistic – with the score rising from 55.5 to 56. It will probably be confirmed as well.
Retail Sales: Published on Wednesday at 9:00 GMT. Germany’s retail sales were a bitter disappointment on Friday – dropping by 0.9%. The figure for whole Euro-zone is expected to follow with a drop as well, but much more modest – 0.1%. A positive number will boost the Euro.
German Factory Orders: Published on Thursday at 10:00 GMT. After many strong months, factory order corrected with a drop last month, of 0.5%. And now, just before the rate decision, we’re expecting the positive trend to resume with a rise of 1.5%.
Rate decision: Published on Thursday at 11:45 GMT. Jean-Claude Trichet is widely expected to leave the Minimum Bid Rate unchanged at 1%. While inflation is slightly rising, it’s still far from worrying levels (like in Britain). On the other hand, unemployment remains high in the Euro-zone, and the debt crisis is far from over. 45 minutes after the rate decision, Trichet will hold a press conference. Any comments will rock the Euro.
German Industrial Production: Published on Friday at 10:00 GMT. Complementing the factory orders number on the previous day, this figure is also expected to be positive – with a rise here of 1.1%, continuing a positive trend of the past 3 months.

EUR/USD Technical Analysis

The Euro began the week by rising from the 1.2880 line towards 1.30. After struggling with strong resistance around this level, EUR/USD climbed up to 1.3107, just under the 1.3114 resistance level, before dropping and closing at 1.3050.

Most lines haven’t changed since last week’s outlook. EUR/USD is currently bound between the psychological level of 1.30 and the fierce resistance line of 1.3114 – a line that supported the pair in May, before the big collapse, and afterwards capped an attempt of recovery.

If Euro/Dollar breaks above this level, the next hurdle is 1.3267, which was a support line twice (March and April). Above, 1.3435 was also a strong line of support in February and later worked as resistance in April.

Even higher, the notable lines of resistance are at 1.37, and this is followed by the area of 1.3850 – a level last seen 6 months ago.

Looking down below 1.30, the next line is 1.2880, which held the pair in 2009 and now works as a minor line of support. Below, 1.2720 worked as a resistance line at the beginning of July and later supported the pair – it’s a strong support line now. It’s followed by 1.2672, which capped the pair in May.

Lower, 1.2520 worked as a support line several times in the past, and it’s followed by a former resistance line at 1.2460, which provides further support. There are more lines below, with 1.2150 being the most significant one down the road.

It’s also interesting to look at the pair’s uptrend channel (also in the graph. EUR/USD is currently trading within this steep channel. A break to either direction will be a signal.

I am neutral on EUR/USD.

The Euro-zone still has issues of its own. The stress tests failed to provide confidence and the unemployment rate is still very high. On the other hand, the US isn’t doing too good either. 1.3114 is the key level.

Euro/Dollar receives excellent reviews on the web. Here are my picks:

James Chen sees the EUR/USD reaching the upside target, and also draws uptrend channels.
Andrei reports that the mixed reports cause volatility.
Mohammed Isah’s outlook is higher, with more upside risk.
TheGeekKnows provides a review of the past week and a look forward.

I’ll add more links later, as more articles are due.

Further reading:

For a broad view of all the week’s major events worldwide, read the USD outlook.
For GBP/USD (cable), look into the British Pound forecast.
For the Australian dollar (Aussie), check out the AUD/USD forecast.
For the New Zealand dollar (kiwi), read the NZD/USD forecast.
For USD/CAD (loonie), check out the Canadian dollar forecast.

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Forex Weekly Outlook – August 2-6

Posted: 31 Jul 2010 01:20 AM PDT

The first week of the month is always very busy. We have rate decision in Europe and Britain, and lots of American figures – with the best for last – Non-Farm Payrolls. Here’s an outlook for this week’s major market movers.

EUR/USD struggled with resistance, but eventually kept on swimming in the uptrend channel. Yet again, it enjoyed US weakness rather than European strength. US weakness will probably continue through the next week as well. Let’s start:

US ISM Manufacturing PMI: Published on Monday at 14:00 GMT. Manufacturing in the US pushed the economy forward, being positive (above 50) in the past 11 months. But also here, a warning sign was seen last month, as this survey of 400 purchasing managers unexpectedly dropped to 56.2 points. Another drop is expected – to 54.3 points.
Ben Bernanke talks: Starts speaking in Charleston on Monday at 14:15 GMT. In a speech about the the challenges of the economy, the chairman of the Federal Reserve might release an updated opinion about the economy and about the interest rate. Any small hint may rock the markets.
Australian rate decision: Published on Tuesday at 4:30 GMT. If there were any forecasts for more rate hikes, they were erased as quarterly CPI, published last week, showed that inflation is very tame – no rate hike is necessary in Australia. So, Glenn Stevens is expected to leave the Cash Rate unchanged at 4.5%. The Aussie will rock by the wording of the accompanying rate statement.
US Personal Spending: Published on Tuesday at 12:30 GMT. Consumer spending could fall for the first time in 9 months. After it rose by only 0.2% last month, and the CB Consumer Confidence was weak, this important gauge will probably rise by only 0.1%, hurting the dollar.
US Pending Home Sales: Published on Tuesday at 14:00 GMT. The number of homes that were sold but are still awaiting the final transaction dropped by a whopping 30% last month, after a homebuyer tax credit expired. The housing sector is very vulnerable and still very dependent on government support. This time, a correction is expected – this should boost the dollar.
US ADP Non-Farm Employment Change: Published on Wednesday at 12:15 GMT. The importance of this report for the private sector rose in the past few months, as the decennial census caused big jumps in the Non-Farm Payrolls, and the focus was on the private sector. While this isn’t always a good indicator for the NFP, it always rocks the markets. Last month’s small and disappointing gain of 13K will probably be followed by a higher gain this time – 36K.
US ISM Non-Manufacturing PMI: Published on Wednesday at 14:00 GMT. Similar to the manufacturing PMI, also the services sector is already “over the hill”. Last month’s disappointing drop to 53.8 points is likely to be followed by another drop to 53.3 points, but the score is expected to be above 50 – still showing economic expansion.
New Zealand employment data: Published on Wednesday at 22:45 GMT. Employment figures always rock currencies. In New Zealand, the effect is stronger, as these numbers are released only once per quarter. The last release was superb – unemployment change jumped by 1%, and the unemployment rate made a steep drop from 7.1% to 6%, boosting both the kiwi and the Aussie. But this quarter won’t be that good – employment is expected to rise by only 0.5% and the unemployment rate is predicted to rise from 6% to 6.2% – still OK..
British rate decision: Published on Thursday at 11:00 GMT. There’s a chance of a rate hike in Britain. Mervyn King joined other economists by expressing concern about the rising inflation. Britain now enjoys a nice growth rate, and improving unemployment situation. One member wants a hike from 0.50% to 0.75%. Will the rest follow? Even if not, the accompanying MPC Rate Statement will definitely shake the Pound.
European rate decision: Published on Thursday at 11:45 GMT. In Europe, things aren’t so good. The unemployment rate is still very high, and while Germany is doing well, the rest of the continent is still struggling. Jean-Claude Trichet is expected to leave the European Minimum Bid Rate at 1%. His words regarding growth, employment and the unwinding debt crisis in the ECB Press Conference will rock the Euro.
US Unemployment Claims: Published on Thursday at 12:30 GMT. As the last hint before the Non-Farm Payrolls, jobless claims will porbably remain similar to last week’s number of 457K. This gauge remained in a narrow range between 440K to 480K in recent months. When it dropped to 429K three weeks ago, this was merely a wrong calculation. Only a big drop will boost the US dollar.
Canadian employment data: Published on Friday at 11:00 GMT. Contrary to its neighbor from the south, Canada’s job market is steaming hot. A huge gain of 93.2K was reported last month, far better than expected. Also the unemployment rate provided a very pleasant surprise, dropping below 8%. This time, a small gain in jobs is expected, and the unemployment rate is expected to remain unchanged.
US Non-Farm Payrolls: Published on Friday at 12:30 GMT. The monthly circus in forex trading saw a big hangover last month – a drop of 125K jobs. This followed a huge gain in the previous month – related to the census. A loss of 75,000 jobs is expected at the moment. The unemployment rate dropped to 9.5% – this good news is likely to be erased with a return to 9.6% this time. A special preview for this event will be posted later in the week.