- Bullish-bearish distribution is unchanged for a third day at 44-56%
- "Sell" orders are prevailing over those to acquire the Euro in 50 and 100-pip ranges from the spot
- Attention turns to US fundamentals including December inflation data later on Wednesday
- Daily studies are neutral with respect to EUR/USD
- Economic events to watch in the next 24 hours: World Economic Forum in Davos (Day 1); German PPI (Dec); US CPI (Dec); Housing Starts (Dec), Building Permits (Dec) and Crude Oil Inventories (Jan 15)
Investor confidence in Germany declined in January for the first time in three months amid a turbulent start to the year for global equity markets triggered by concerns about China's economic outlook. The ZEW Center for European Economic Research reported that its index of investor and analyst expectations dropped to 10.2 in January, down from December's 16.1. Furthermore, the current situation index came in at 59.7 in January, climbing from December's reading of 55.0, while analysts had expected the numbers to record 53.1. German gross domestic product increased 1.7% in 2015, according to the Federal Statistics Office. The Bundesbank predicts the Euro zone's number one economy to grow 1.8% this year and 1.7% in 2017. In the mealtime, inflation in the Euro zone came in at 0.2% in December, in line with preliminary estimates, translating into an annual rise of 0.2%. Given disappointing industrial production data, moribund inflation and slow growth, analysts are wondering whether the ECB could signal more stimulus when it gathers this coming week. In December, the central bank failed to meet market expectations for the bank to expand its QE programme. It decided instead to widen the range of asset purchases it makes, prolong the programme to March 2017 and announced a slightly more modest deposit rate cut.
New Zealand inflation slowed more than expected in the final quarter of 2015, as declining gasoline prices pushed annual price growth to the lowest level since September 1999. According to Statistics New Zealand, the nation's consumer price index dropped 0.5% in the December quarter, compared with economists' expectations for a 0.2% decline. Petrol prices became the main drag, plunging 7.0% over the reported period, while vegetable prices plummeted 17%. The weak quarterly number pushed an annual CPI growth to mere 0.1%. Even though the disappointing inflation data may not be enough to persuade the Reserve Bank of New Zealand to cut rates as soon as next Thursday, it certainly reinforced the view that the rates would be lowered from 2.5% to 2% this year. The central bank blamed weak inflation on the strong New Zealand Dollar and massive plunge in oil prices, but said it predicted inflation to move within its 1%-3% target range by early 2016. Thus, the RBNZ relies on further depreciation of the Kiwi, which would be helpful to support sustainable growth. Since the central bank last met, the nation's currency has lost 5% versus the US Dollar. However, recent declines in the oil price could push petrol prices further down, pushing the New Zealand economy into deflation.
Upcoming fundamentals: WEF kicks off in Switzerland, US CPI data closely watched
Today world leaders are gathering for annual meetings of the World Economic Forum in Davos, Switzerland. Official topic of the three-day meeting is called Fourth Industrial Revolution. However, participants are expected to speak a lot about Chinese economic problems, global equity rout, migration, oil prices, climate change and global security issues. As for pure statistics in course of the next 24 hours, there is a bunch of US data released at 13:30 GMT. Annual inflation is forecasted to surge to 0.8% from 0.5% in December, with core consumer prices rising above the Fed target by 2.1%. Alongside, housing starts in the world's largest economy are set to grow by 2.3% in December, while building permits are likely to drop by 6.4% on a monthly basis during the same month. Building permits are considered to be a good indicator for future housing starts and overall state of real estate sector in the country.
EUR/USD to move in the direction of 1.10
All bearish attempts to send the most traded FX cross down failed on Tuesday. The bulls have eventually overtaken leadership and are pushing EUR/USD much higher in the Asian session on Wednesday. Risk-off sentiment is the main driver for growth, but positive US CPI later in the day may derail this rebound. Still, the bulls are aiming at 100-day SMA near 1.10, which is reinforced by upper Bollinger band and weekly R1. Another important supply is in turn offered by 200-day SMA at 1.1051. At the same time, to worsen expectations the bears have to consolidate EUR/USD below weekly PP/20-day SMA at 1.09/1.0888.Daily chart
Without touching the lower trend-line of the bullish pattern, EUR/USD commenced a confident recovery back to the North. It seems that bullish traders were additionally supported by 200-hour SMA in the one-hour chart. Now we are focusing on 1.0990. Success here will expose the zone around 1.11, while failure threatens to send the pair back to 1.0850 (trend-line).
Hourly chart
Sentiment remains Euro-short, pending orders are also mostly bearish
Meanwhile, 58.56% of OANDA clients continue holding bearish positions on the EUR/USD currency pair, up from circa 54% yesterday. Traditionally, SAXO Bank market participants are more pessimistic with respect to the observed cross, as their bearish traders are enjoying a majority of 67% on January 20 (65% on January 19).
Spreads (avg,pip) / Trading volume / Volatility
69% of Dukascopy Community members are now estimating gains for the Euro vs US Dollar
Following neutral development of the pair during the January 11-15 week, participants of our weekly Community Forecasts quiz decided to become much more bullish on the pair. Norry states that "the New Year has started with a rise of EUR/USD, with commodities prices reaching deep lows. Some of US data that usually moves the market has had no great impact on this pair. Technically, the pair is moving north."
Meanwhile, PisakJanos claims that "everybody is setting eyes on Thursday, waiting for the rate decision of the ECB and its monetary policy statement. As for now, I have not heard any rumors about rate changes, but the policy statement will induce large movements for sure, as it did on the 3rd of December 2015."