Euro Edges Higher Despite Thursday’s ECB Rate Cut - 1.34 the Level to Watch

Euro Edges Higher Despite Thursday’s ECB Rate Cut - 1.34 the Level to Watch
The euro crept higher throughout the day on Friday, despite the release of disappointing European trade results early in the day. The Euro-zone trade deficit widened to a seasonally adjusted 4.9 billion euros in November as exports declined at the fastest pace in more than eight years. Indeed, the global economic slowdown is taking a hefty toll on Europe’s manufacturers, as they also have to contend with waning domestic demand. On the hourly charts of EUR/USD, the pair has established a bear trend from the December highs, but it will be very important to watch where price stands relative to trendline resistance at 1.3400, as a break higher would suggest additional gains are to come.

Looking ahead to the next week, event risk will be relatively low but there are still a handful of indicators worth watching. On January 20, the German ZEW survey of investor sentiment is forecasted to show a slight improvement in opinion on the economic outlook, but a continued deterioration in confidence in the current situation. This is similar to what we saw with the US Reuters/University of Michigan consumer confidence index, which reflected a rise in the economic outlook as the government is likely to come to agreement on a fiscal stimulus plan amounting to $825 billion within weeks. On January 22, the European Central Bank’s Monthly Report is likely to highlight the bleak outlook for the economy and expectations for a decline in inflation pressures in the near-term, all of which created bearish potential for the euro. Finally, on January 23, the Purchasing Managers’ Index (PMI) for the Euro-zone’s services and manufacturing sectors are forecasted to reflect a contraction in business activity for the eighth straight month in January, while the composite index is anticipated to the worst level since recordkeeping began in 2005, highlighting the extent of the recession plaguing the region.

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