EUR/USD consolidates below 1.09, eyes weekly S1

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Source: Dukascopy Bank SA
  • Bulls expanded their advantage to 10 pp over bears, up from six pp yesterday
  • Pending orders are on the bearish side for a seventh consecutive day
  • Consolidation below February uptrend is exposing next major support area at 1.08
  • Daily technical indicators no longer estimate losses for the Euro, as they have changed to mixed
  • Economic events to watch over the next 24 hours: Spanish Unemployment Change (Feb); US ADP Employment Change (Feb) and Crude Oil Inventories (Feb 26); FOMC Member Williams Speaks; Fed's Beige Book

© Dukascopy Bank SA
The only currency against which the Euro posted a confident climb on Tuesday was the Japanese Yen. This cross skyrocketed by 1.12% and bounced back from recent lows registered earlier. Markets were rallying throughout the whole session on Tuesday, with US equities booking their best day in seven weeks. The risk-off sentiment has therefore waned considerably and sent the safe-haven currency to the downside. Alongside, commodity-related currencies have had a very positive day. Canadian Dollar added 1% versus the 19-nation currency, while the Kiwi and Aussie were up by 0.62% and 0.51%, respectively. EUR/USD was the smallest mover yesterday, as it lost only five basis points. The Greenback had been losing value in the beginning of the session, but recovered after US statistics showed the manufacturing industry seems to be stabilizing.

The Euro zone posted some mixed fundamentals, with the unemployment rate at multi-year low in January, while manufacturing activity in Germany, the Euro zone economy's backbone, continued to falter. The Euro zone's jobless rate dropped to 10.3% in January from 10.4% a month earlier, hitting the lowest level since August 2011. That reflected a 105,000 decrease in the number of people without jobs to 16.65 million. In Germany, the unemployment rate remained at its record low in February, as the number of unemployed people dropped 10,000 reaching total of 2,723 million in February. The jobless rate stood at 6.2% last month, but Germany saw a record influx of migrants last year and this data has so far not been reflected in the statistics. Meanwhile, the German manufacturing activity rose slightly in the reported month. The final PMI for Germany's industrial sector climbed to 50.5 in February, compared with January's 52.3. The Euro zone's manufacturing sector rose at the slowest pace in twelve months in February, with the corresponding gauge falling to 51.2, down from 52.3 in January. In Italy, the Euro zone's third biggest economy, annual economic output rose at the fastest pace in five years. Italy's GDP grew 0.8% in 2015, compared with the revised –0.3% in 2014.

The Australian economy beat all expectations, growing at the fastest pace in almost two years in the final quarter of 2015, a sign the worst of the global commodity rout may be over. Australia's gross domestic economy rose 0.6% in the fourth quarter from the July-September period, when the economy grew an upwardly revised 1.1%, outpacing economists' forecast for a 0.4% growth, according to the Australian Bureau of Statistics. That propelled growth for the whole year to 3%, compared with 2.5% that had been expected by analysts. Consumers were the main driver of growth, with household consumption expenditure increasing 2.9% annually. Households spent more last year even though their wages rose just 2.2%, the slowest annual rate on record. The improvement of labour demand over the last year despite weak economic growth levels has been an important measure of the economy's strength through mining downturn, and something that surprised policy makers. While most economists expect last year's GDP figure would diminish the RBA's easing bias towards interest rates, some say low inflation could still force policy makers to act. The central bank estimates the worst of the drag from mining will be over this year, while all-time low rates, increasing house prices and a boom in home building continue to spur domestic demand.

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Upcoming fundamentals: FOMC's Williams speaks, Aussie trade data is due



Wednesday is going to be busy in terms of economic calendar events, especially in the US. Apart from ADP employment numbers and the Beige Book from the Fed, there are a number of speeches by monetary policy officials from the Euro zone, US and UK. Benoit Coeure, an Executive Board member of the ECB, will speak in Frankfurt and markets want to see clearer indications about the upcoming ECB meeting next week and a possibility of additional stimulus being added by policymakers in the Euro area. In the meantime, president of the San Francisco Fed John Williams is going to participate in a discussion in California. He is an alternate, non-voting member of the FOMC committee this year.


EUR/USD consolidates below 1.09, eyes weekly S1

EUR/USD has ultimately confirmed its bearish intentions, as it managed to hold below the Jan-Feb uptrend for two days in a row. The first support today is offered by the weekly S1 at 1.0852, but any encouraging US ADP numbers later in the day may provoke a sell-off down to 1.0809, namely the Feb low. Ability to pierce through the latter will expose the third demand zone for Wednesday at 1.07 (Jan low, monthly S1). On the other hand, weekly technical indicators are long and we are not ruling out the possibility of a rebound toward the 100-day SMA, the first resistance, at 1.0928 over the next 24 hours.

Daily chart
© Dukascopy Bank SA

The cross is respecting the pattern's lower boundary, by trading near this line for a third consecutive day. Along with that, EUR/USD is nearing another major downtrend, which connects local highs from May/July 2014 and maximums of Aug/Oct 2015. Therefore, a failure here at 1.0820 will most likely cause a deeper slide of the Euro in the foreseeable future. In case the bulls come together to provide some purchasing activity, the first resistance to face is located as far as 1.0980 (Jan-Feb 2016 uptrend).

Hourly chart
© Dukascopy Bank SA

Traders become even more positive toward EUR/USD

At the moment the bullish advantage over bears amounts to ten percentage points in the SWFX market. This is up from a six pp difference 24 hours ago. With traders continuing to acquire the common European currency, positive sentiment is renewing its multi-month highs. Nevertheless, pending orders remain unmovable on a daily basis. In the range of 50 pips from the current spot 55% of our traders are betting on the Euro's drop, no change for a third successive day. As for 100-pip commands, here the share of the bears is 54% at the moment of writing.

In the OANDA market only 51% of all open positions are being held by bearish traders, indicating there is a minimal possible majority over the bulls that are with 49%. Alongside, 57% of SAXO Bank clients are still going short on the single currency against the Buck.












Spreads (avg,pip) / Trading volume / Volatility




Dukascopy Community members are strongly bearish with respect to EUR

© Dukascopy Bank SA

Participants of the Dukascopy Community Forecasts quiz support the general negative view on the pair, with 64.3% of all votes being short at the moment. The average expectation for the end of the current week is located at 1.081. According to the opinion of Besim76, "EUR/USD lost 1.82% this week, as the markets reversed midweek. The Euro fell on weak inflation data and stress over the possibility of an exit of the UK from the EU; therefore, I am expecting a bearish trend".


Concerning other forecasts among members of the Community, Trademaster assumes "EUR/USD strongly remains in a bearish market and may continue to depreciate further this week due to increasing probability that the European Central Bank will soon act to implement additional monetary easing measures." From the other side of the coin, megajorko thinks that "after Friday's drop the pair could start rising again. A huge increase is not expected, while the magnet of 1.10 will remain."

Average forecast says EUR/USD will trade at 1.12 by May

Meanwhile, traders, who were asked regarding their longer-term views on EUR/USD between Feb 2 and Mar 2 expect, on average, to see the currency pair around 1.12 by the end of May. Though 61% of participants believe the exchange rate will be generally below 1.14 in ninety days, with 44% alone seeing it below 1.10. Alongside, 27% of those surveyed reckon the price will trade in the range between 1.14 and 1.20 on May 31.

© Dukascopy Bank SA

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