EUR USD Weekly Outlook Nov 14, 2011

The EUR USD finished lower last week despite a valiant effort to recover most of the loss from a vicious sell-off on November 9. Political turnovers in Greece and Italy helped bring a little serenity to the market late in the week, but for the most part uncertainty still remains the driving force behind its volatile movements.

Technically the Euro is being dominated by two major ranges. The first range of 1.4549 to 1.3145 has formed a retracement zone at 1.3847 to 1.4013. The second major range is 1.3145 to 1.4247. Its retracement zone is defined as 1.3696 to 1.3566.

Looking at the chart, you can see that the market is basically trapped between the two 50% retracement levels at 1.3696 to 1.3847. These two levels are defining the market’s short-term range and are by definition a visual example of what “uncertainty” looks like. In other words, what better way to describe “uncertainty” than by saying the market is caught between a pair of mid-points. The market is going to have to breakaway from one of these levels to signal its next move, but at this time, traders seem content with keeping it in a holding pattern.

Besides the key 50% levels, last week’s trading action tested and regained a 61.8% level at 1.3566. In addition, the same type of move took place when the market broke through an uptrending Gann angle. This angle moves to 1.3625 this week. On the upside, a downtrending Gann angle at 1.3767 is providing the resistance. One of the first signs of strength will be a breakout and close above this angle.

Given these technical points and the Euro’s volatile nature, these levels are not expected to compress prices this week, but if they do then it will mean the market is setting up for a wicked move. The direction will be headline driven since no one seems to want to make a commitment in either direction until a news event triggers the next move.

Among the major reports that could trigger movement this week besides the headlines regarding sovereign debt are Euro Zone industrial production, German Preliminary GDP, German ZEW Economic Sentiment, Euro Zone ZEW Sentiment and German CPI/PPI.

Euro Zone industrial production is expected to show a decline of 2.1%. A lower number is expected to have a negative effect on the Euro. The size of the move will be dependent on how much the actual varies from the estimate. This report is not expected to have too much of an impact because reports from Germany and France carry more weight.

German Preliminary GDP is expected to show an increase to 0.5%. This will be a slight improvement to last quarter’s report which showed an increase of only 0.1%. A better than expected number could underpin the Euro.

The German ZEW Economic Sentiment indicator is also due out this week. Given the lingering problems in the Euro Zone, this report may prove to be quite interesting because it is a gauge of how German institutions actually feel about the economy going forward. 0.00 is the benchmark. This month’s forecast is -51.8 indicating a pessimistic outlook. The Euro can rally if this number comes out better than expected.

The week wraps up with the German CPI and PPI reports. Germany’s year-to-year CPI is expected to rise to 3.0%. Core CPI to 1.6%. Both are unchanged from the previous month. October PPI is expected to decline from 3.0% to 2.0%. Inflation seems to be in control in Germany so unless this report misses the mark, traders should expect little reaction.

Despite these key economic reports, the EUR USD is expected to remain rangebound unless acted upon by a force such as news from Greece or Italy. Although optimism seems to be in the air because of the new governments in Greece and Italy, there will be a hint of nervousness because both of these nations still have to approve austerity measures and the recent Euro Zone debt restructuring proposals. The key economic report to watch is the German Preliminary GDP since this country seems to be the most financially sound at this time. A lower than expected GDP figures could trigger a bearish reaction.