- Sentiment bounced back yesterday, as the portion of longs went down to 51% from 55%
- Pending orders are on the bearish side for an eight consecutive day
- Failure to breach 1.0850 for a third day on Thursday may signal about weakness in the bearish camp
- Daily technical indicators are back to red; half of studies suggest the Euro should drop on Thursday
- Economic events to watch over the next 24 hours: Euro zone Services PMI (Feb) and Retail Sales (Jan); US Unemployment Claims (Feb 27), Unit Labour Costs (Q4), Services PMI (Feb), ISM Non-Manufacturing PMI (Feb) and Factory Orders (Jan)
The Euro zone's growth and inflation prospects have weakened and policy makers should take these developments into account when deciding on monetary policy. Inflation across the 19-country currency bloc slid into negative territory in February, virtually ensuring the ECB will unveil additional stimulus when it reviews policy on March 10. Meanwhile, Bank of France Governor Francois Villeroy de Galhau said that he ECB is ready to deploy fresh stimulus measures to underpin worryingly low inflation. The central bank's tools include targeted loans to commercial banks, more asset purchases and providing more details about how long the ECB plans keep rates at low levels. Mr. Villeroy de Galhau noted that the brief period of negative inflation does not mean the arrival of a more prolonged period of falling prices. Inflation should turn positive again later this year with the stabilization of oil prices. At the same time, ECB Board Member Benoit Coeure also dropped a clear hint that the central bank would ease monetary policy this month, after underscoring the necessity of stimulating economic growth and pushing inflation up. However, Mr. Coeure noted that the central bank is well aware of negative rate impact on bank profits. Money markets now price at least two rate cuts this year, taking the deposit rate to –0.55% from the current –0.3% by the end of 2016.
US private sector created more jobs than expected in February, another sign that the US job market remains resilient despite economic weakness overseas and volatility in financial markets. According to payroll processor ADP, US private companies hired 214,000 workers last month, whereas economists had expected a gain of 190,000 jobs. Private payroll gains in January were revised down to 193,000 from an originally reported 205,000 rise. The ADP data come ahead of the US Labor Department's more comprehensive non-farm payrolls report on Friday, which includes both public and private-sector employment. Economists are forecasting total non-farm employment to have grown 190,000 in February, while the unemployment rate is predicted to remain unchanged at 4.9%. In addition to that, the ISM will deliver the potential market-moving indicator for the US when it publishes its non-manufacturing index for February on Thursday. Earlier in the week, the ISM reported that US manufacturing activity continued to shrink in February for the fifth consecutive month. The ISM index of purchasing managers rose to 49.5 last month, compared with 48.2 in January. Even though, the figure represented the highest reading since September 2015, the gauge remained below the key 50-mark threshold, which indicates a contraction in manufacturing that accounts for 12% of the US economy.
Upcoming fundamentals: EU services to expand in February
PMI numbers for a number of European countries are out in the morning on Thursday. Only the services sector in France is estimated to register a decline in activity, by booking a 49.8 points reading today. French statistics will be out at 8:50 GMT. Italian data is due at 8:45 GMT and there analysts see a slowdown to 52.7 points in February from 53.6 a month before. Germany's services industry should grow at the strongest pace among three largest countries of the Euro zone. Published at 8:55 GMT, the number anticipated is 55.1 points.
EUR/USD is still contained by weekly S1
The bears were trying to send EUR/USD under the first weekly demand line (1.0853) on Wednesday; however, all attempts failed ultimately and the pair came back above 1.0850 by day-end. Despite that, our medium-term expectations are skewed to the downside and we see the weekly S1 being tested once again over the next 24 hours. By doing that, EUR/USD should eventually expose the Feb low at 1.0809 and the 1.07 cluster later. The outlook is again backed by daily technical indicators that are pointing to the downside.Daily chart
Future development of the most traded FX currency pair seems to be brighter from the perspective of the 1H chart. Here EUR/USD is holding near the lower downtrend line for a fourth consecutive day, while receiving additional demand from another long-term downtrend. Both lines are currently placed at 1.0812 and their ability to energize the bulls may result in a spike in the direction of 1.0965/80, namely 200-hour SMA and January uptrend.
Hourly chart
Difference between bulls and bears narrows back to minimal possible
In the OANDA market only 51% of all open positions are being held by bearish traders, indicating there is the smallest 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
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."