After touching 1.3404 EURUSD could not sustain above it and had fallen to 1.3256. The second attempt to enter the 1.3500 psychological ranges failed at 1.3398 and the second fall took the currency pair to 1.3280. The recent economic releases reflect a clear weakness for Japanese yen but a neutral outlook for EUR/USD. The recent economic data from the last week has been as follows:
EMU (EUR): Industrial production: Year on year change in working day adjusted industrial production -3.7%, negative as compared to the forecasts (-3.2%) as well as the previous -3.3%.
EMU (EUR): German Consumer Price index: year on year change 2.1% and same as the consensus and better than the previous 1.9%. Same with the month on month change of 0.9% against the previous -0.2%. Year on year change in harmonized consumer price index was 2.0% and though it was slightly less than the forecasts of 2.1% but was better than the previous 2.0%.
EMU (EUR): Consumer Price Index: year on year CPI remained same as the consensus and previous 2.2%. Month on month change in CPI was 0.4% and positive as compared to the forecasts as well as the previous -0.2%. The year on year core CPI was 1.5% and slightly better than the previous 1.4%.
U.S. (NYSEARCA:USD): Producer price Index: Year on year PPI 1.3% was negative as compared to the forecasts (1.4%) as well as the previous 1.5%. Year on year PPI ex Food & Energy was 2.0% and negative as compared to the forecasts (2.1%) as well as the previous 2.2%. Month on month change in PPI ex food & energy remains same as the previous at 0.1% and less than the consensus of 0.2%.
U.S. (USD): Retail Sales: Month on month change was 0.5% and positive as compared to the forecasts (0.2%) as well as the previous 0.4%. Same with the month on month change in retail sales ex-autos which was 0.3% against the consensus of 0.2% and previous -0;1%.
U.S. (USD): Consumer Price Index: Year on year CPI 1.7%, negative as compared to the forecasts as well as the previous 1.8%. Month on month change was same as the consensus of 0.0% and slightly better than the previous -0.3%. Year on year change in CPI ex-food and energy remained same as the previous release and the consensus of 1.9%.
U.S. (USD): Industrial Production: Month on month change was 0.3% and though same as the consensus but quite less than the previous 1.0%.
U.S. (USD): Housing: Month on month housing starts was 0.945M and hence positive as compared to the forecasts (0.890M) as well as the previous 0.851M. Month on month change in new building permits came out same as the consensus of 0.903M and slightly better than the previous release of 0.899M.
U.S. (USD): Reuter/Michigan Consumer Sentiment Index (prelim): 71.3, negative as compared to the forecasts (75.0) as well as the previous 72.9.
Japan (JPY): Machine Tool Orders - YoY (prelim): -27.5% against the previous -21.3%.
Japan (JPY): Machinery orders: Year on year change was 0.3%, positive as compared to the forecasts (-6.5%) but quite less than the previous 1.2%. Month on month change was quite 3.9% and hence better than the consensus of 0.3% and previous 2.6%.
Japan (JPY): Consumer Confidence Index: 39.2, negative as compared to the forecasts (40.7) as well as the previous 39.4.
Japan (JPY): Tertiary Industry Index (MoM): -0.3%, negative as compared to the forecasts (0.1%) as well as the previous -0.1%.
Japan (JPY): Industrial Production (YoY): -5.5% against the previous -4.5%.
Graphical representation of the relative strength of economic releases
(economic Strength meter copyright ForexAbode.com)
What to expect during the next week:
Technically the failure of EUR/USD near 1.3400 indicated the pressure of approaching 1.3500 psychological level. During the end of February 2012 1.3500 had posed a strong resistance when the pair had failed at 1.3486 and had fallen strongly. Not only that but please check this EUR/USD alert to see that the resistance also came near upper trend line of the mid-term price action channel.
Our outlook for further upward gains has not yet neutralized but the next week may find some more downward consolidation. In case a break below 1.3280 takes place then on the downside support is expected near 1.3256 which was the low of last week. A break below this is critical to expect more consolidation. In case a decisive break below 1.3256 takes place then further downward move may come towards the support zone of 1.3170/1.3180. Such a move will indicate completion of the recent double top chart pattern (peaks of 1.3404 and 1.3398). This support zone is also slightly over the support of the upper edge of daily Ichimoku cloud. In case this support breaks then further downward move towards 1.3135/1.3140 will be expected (please check the link to the EUR/USD alert given above). This zone will not only bring the support of the trend line but also the psychological support of the approaching 1.3000 ranges.
However, if the immediate supports as mentioned above hold and a decisive break over the recent 1.3404 takes place then EUR/USD should target 1.3486. As this EUR/USD alert, 1.3486 is also critical because of the psychological resistance of 1.3500 level. For past over one year the price action has been below 1.3500. This level does not only represent the resistance during later half of February 2012 but such a move will also represent the 50% retracement of the downward move during beginning of May, 2011 and July 24, 2012. Please check the price action of Euro versus US dollar.
The strong break over 120.00 keeps the outlook bullish for EUR/JPY. If support in the range of 119.20/119.34 holds then we would expect a test of 120.83 level first and a break of that should take the currency pair towards 123.32 key resistance.
On the downside if a decisive break below 119.20 takes place then some more downward consolidation will be expected towards 118.20. This level was the high of the Doji style candle of January 16th and we expect it to this previous resistance to turn into support now. Our bullish outlook will start neutralizing if EUR/JPY breaks below 116.99 and a confirmation of the same will come with any break below 116.47 which was the low of the same candle and a support on January 16th. In case such a move takes place then we would expect an extended volatile sideways action between 115.00 and 120.00 psychological levels. Please check the price action of Euro Versus Japanese Yen.
Connect with the author at Google: +Himanshu Jain.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.