The Week Ahead for the EUR: June 14-18

During the past week, the Euro reached a 2 week high against the Dollar, trading with a low of 1.1876 and with a high of 1.2152. The worries about the Hungarian public finances from the prior week were calmed during the course of the week albeit temporarily. Portugal and Spain successfully launched bonds in the market, which was also seen as a good sign. Furthermore, thanks to the establishment of the EFSF (European Financial Stability Facility) and the introduction of national consolidation measures, credit default risks for individual euro area countries have been significantly reduced - a point in the euro's favour. Some reasonable economic data also show that the global economic recovery is continuing: in Germany, for instance, Industrial New Orders and Industrial Production rose again significantly in April. On the whole, anti-euro sentiment in the forex markets seems to be dying down somewhat. Interest rate remains unchanged at 1.0%.

Overall consensus: Slightly bearish. For the week ahead, further depreciation of the euro vis-à-vis the dollar is expected despite the Euro sentiment having improved slightly. One of the reasons for the bearish view of the euro is the dull growth outlook for the Euro-zone. Although the euro certainly could strengthen somewhat in the near term, a continuation of the down trend in the value of the currency seems likely.

The upcoming week will be dominated by economic indicators, with the ZEW Economic Sentiment getting top billing. Here’s an outlook for the major events that await the Euro this week.

Monday, June 14

A measure of the health of the broader Euro-zone economy comes out this week when April Industrial Production (IP) data for the Euro-zone becomes available. Although Germany and France have already released their figures, the EU Industrial Production release still tends to surprise and move the Euro. Last month’s rise of 1.3% was in contrast to the previous month’s drop. A more modest rise of 0.7% is expected this time.

Tuesday, June 15

The Center for European Economic Research will publish the ZEW Economic Sentiment for June. This major German investor confidence fell in May, paring back most of its sharp rise in the previous month. The market expects a modest weakening as the figure is expected to drop to 45.8, from 53 in April. Also the all-European figure is expected to rise from 45.8 to 48.7.

Wednesday, June 16

The Euro Zone CPI will be realised by the Eurostat. This figure is considered the Eurozone's most important inflation gauge because it is used as the central bank's inflation target, but it tends to have a relatively mild impact as the CPI Flash Estimate and German Prelim CPI are released about 15 days earlier. European prices rose last month, and reached an annual rate of 1.6%. This is still OK, and doesn’t poise a threat. The annually adjusted rise of 1.6% will probably be confirmed, whereas the Core CPI is expected to be revised from 0.9% to 0.8%.

Thursday, June 17

A week after the rate decision, the ECB will release its Monthly Bulletin, which contains a detailed analysis of the prevailing economic situation and the risks to price stability. Jean-Claude Trichet mentioned last month that the economy will expand at a moderate pace in 2010 and recovery will be uneven, ensuring that European economies are passing a challenging phase and referring also that economies are not growing at the same speed. This statistical data tends to shake the currency.

Friday, June 18

Published at 6:00 GMT, the German Producer Prices Index is a leading indicator of consumer inflation, it has surprised in the previous couple of releases with much higher than expected figures. Last months figure of 0.8% eclipses this month’s forecast expectation of a relatively modest rise of 0.2%.

The Technical View

Last week gave the Euro a brief respite after weeks of sustained selling pressure. The week began painfully with the EURUSD bottoming at 1.1876, a level that had not been visited since early 2006. With a slight calming in the fundamental situation for the EUR, the EUR recovered ending the week testing the 1.2110-1.2160 resistance area, a major Support turned Resistance area formed over the preceding 2 weeks.

The strong down trend remains very much intact across the board with EUR pairings, if the EUR can maintain some positive momentum it is likely that the EUR will find the 1.2440-1.2460 area major resistance this area also confluences with a major down side trend line.

On the downside the 1.1755-1.1780 offers some major support below the current 1.1876 lows. If sentiment really hits a bearish tone 1.1638, the low from 2005 would be an important level to watch in terms of sentiment and stop management by the bigger players.

What’s Important?

In terms of the fundamentals the German ZEW figures will help dictate market direction early in the week. As the market continues to test historical lows the key area around 1.1755-1.7580 and 1.1638

Key Words for the Week

German ZEW, 1.2440-1.2460 Resistance, 1.1755-1.1780 Support