EUR-USD prediction july 16-20 2012

forex trading outlook today - EUR-USD prediction july 16-20 2012 :The EUR/USD was weak all week, but picked up some strength on the short squeeze on Friday. The week saw mostly negative eco data in the EU but the overall negative sentiment towards the EU was disappointment over progress from the Eurogroup. After markets soared on promises from the EU Summit in June and a commitment to implement the plans by July 9th, nothing actually happened and the Eurogroup made no progress. On this note investors turned sour and withdrew their support from the euro.

this coming week there will be a great deal of data from the US with little eco risk in the EU. On Monday, July 16th, the June inflation figures for the euro area will be released. The flash CPI estimate showed inflation unchanged from May, at 2.4% y/y (implying a flat reading on a month-over-month basis), and we expect this figure to be confirmed next week. The renewed price stickiness — the inflation rate was steady at 2.7% y/y from December through March, before falling for two months — is likely the result of a partial recovery in Brent oil prices in late June, euro weakness, and unfavorable weather conditions which could have boosted both food and energy costs. In fact, there is a possibility that the June print could be revised upward to 2.5% y/y, particularly in light of the Italian and French reports, which showed unexpected monthly price gains in June. If this stickiness persists, the European Central Bank (ECB) will have to revise its inflation outlook (the headline rate is currently expected to fall below 2% later this year and remain below target in 2013). In turn, this would likely preclude any further reduction in the key policy rate after last week’s 25 basis point cut, which brought the main refinancing rate to a record-low 0.75%.

According to the latest U.S. economic reports, producer prices grew by 0.1% in June, which was the first increase in wholesale prices in four months. Economists anticipated another monthly decline in price pressures, but with PPI ticking upward the case for a third round of quantitative easing weakens. Excluding food and energy costs, PPI rose 0.2%, which was right in line with expectations. While inflation is still very low, the Fed will latch on to any reasons that would allow it to delay QE3.

EUR/USD dropped further to as low as 1.2162 last week as the near term down trend continued. Further fall is still in favor initial this week for 61.8% projection of 1.3282 to 1.2287 from 1.2747 at 1.2132. Though, considering bullish convergence condition in 4 hours MACD, strong support could be seen at 1.2132 projection level to bring rebound. Above 1.2333 minor resistance will indicate short term bottoming and flip bias back to the upside for a test on 1.2747 resistance. Meanwhile, sustained break of 1.2132 will target a test on 1.1875 key support level.

In the bigger picture, fall from 1.4939 is treated as a falling leg inside the consolidation pattern that started at 1.6039 (2008 high) and could extend to 1.1875 low and below. In that case, though, strong support is expected from 1.1639/1875 support zone to contain downside and bring rebound. After all, such consolidation would extend further inside range of 1.1639/6039 for some more time. On the upside, decisive break of 1.2747 resistance will be the first sign of reversal and will turn focus back to 1.3486 for confirmation.

In the long term picture, EUR/USD turned into a long term consolidation pattern since reaching 1.6039 in 2008. Such consolidation is still in progress and we'd expect range trading to continue for some time between 1.1639 and 1.6039. For long term traders, anywhere below 76.4% retracement of 1.1639 to 1.6039 at 1.2677 could be treated as a buy zone while above 23.6% retracement at 1.5001 is a sell zone, until there is clear indication of breakout. That this, it's time for long term traders to liquidate EUR/USD shorts and start building up long positions for medium term rebound.

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