- Percentage of buy orders declined from 62 to 56%
- Share of shorts fell from 61 to 57%
- Resistance is the recently broken trend-line at 1.1420
- Support is the 200-hour SMA at 1.1340
- Economic events to watch in the next 24 hours: Euro zone Final CPI (Sep), US UoM Consumer Sentiment (Oct), Industrial Production (Sep), Capacity Utilization Rate (Sep)
© Bloomberg
The US annual inflation dropped the most in eight months in September, weighed down by cheap fuel, according to data released by the Bureau for Labor Statistics. The consumer price index declined 0.2% last month after sliding 0.1% in August. In the 12 months through September, consumer inflation was unchanged for the first time in four months after climbing 0.2% in August. However, the core annual CPI edged up 1.9%, the largest rise since July 2014, after increasing 1.8% in August. Low inflation, which has persistently run below the Fed's 2% target, is a major hurdle to an interest rate hike this year
At the same time, the number of Americans applying for new applications for jobless benefits fell back to the lowest level in 42 years last week, suggesting the labour market remained strong despite a steep slowdown in job growth in the past two months. Initial claims for state unemployment benefits declined 7,000 to a seasonally adjusted 255,000 for the week ended October 10, the Labor Department reported. Claims were last at this level in July, which was the lowest since November 1973. It was the 32nd consecutive week that claims remained below the 300,000 threshold, which is normally associated with an improving labour market
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Optimism among US consumers to increase
The Euro zone inflation number (actually, deflation according to the consensus) in the morning unlikely to have a major impact on the market; though the data could potentially serve as a catalyst for more discussions about additional easing from the European Central Bank. Later in the day the University of Michigan is to publish a report on the consumer sentiment in the United States, which is expected to improve to 88.8 upon the revised 87.2 for September. At the same time, industrial production in the world's largest economy is estimated to keep contracting, although at a slower pace in last month than in August, namely shrink by 0.2% after declining 0.4%.
Read More: Fundamental Analysis
EUR/USD risks falling lower
Jean-Francois Owczarczak from Fingraphs.com is negative on EUR/USD in the long run. He thinks that "in the perspective of the strong move down late last year early this year the correction is still quite shallow, and we still believe it is only a consolidation". According to Fingraphs.com algorithms the targets below parity or just below parity could be reached in the next few quarters. As for the short term, however, Jean-Francois is bullish, and expects the currency pair to reach 1.15, possibly even 1.16, before the correction is over.EUR/USD came under heavy fire once it approached the 1.15 level. However, once again these were fundamental rather than technical factors that weighed the currency down, namely dovish comments of the ECB official. In any case, the pair is now under the monthly R1, meaning it is vulnerable to an extension of the decline. The nearest significant support is only at 1.13, implying a potential dip of 80 pips in the nearest future. A more reliable demand area is at 1.1240/15, created by the monthly PP and 55-day SMA.
Daily chart
© Dukascopy Bank SA
Despite the currency pair breaking through a number of important resistances, it failed so sustain bullish momentum and dipped below 1.1420, namely the rising support line. Accordingly, we now have a strong case in favour of a deeper decline, down to the 200-hour SMA at 1.1340.
Hourly chart
© Dukascopy Bank SA
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Bears preserve majority
Bearish sentiment also subsided among the OANDA and SAXO Bank clients, but their negative bias is still significantly stronger than bias among the SWFX traders. At the moment 62 and 68% of open positions at OANDA and SAXO Bank respectively are short.
Spreads (avg,pip) / Trading volume / Volatility
Community expects Euro to appreciate
© Dukascopy Bank SA
In a week's time, the sentiment on this currency pair changed insignificantly. This time 55% of traders predict the Euro to rise in value, while almost the same percentage of Dukascopy Community members thought this currency would gain ground last week. The mean estimate for October 16 is 1.145.
According to one of the bulls, nuonrg, "EUR/USD is on an up channel in the daily chart from March lows" and "it is not so much a bear flag any more as there have been several breaks higher". The trader believes the currency pair will move towards the upper edge of the channel, and says 1.18552 is his current objective.
Read More: Community Forecasts
But there are those who disagree. For example, bokafx is bearish on EUR/USD, arguing that the pair faces tough resistance, namely the September maximum (1.146) and monthly R1 (1.1395). As a result, he considers the current situation a good sell opportunity with a target at 1.124 (monthly pivot point).
Traders cannot agree on long-term prospects
Looking at the average of the three-month forecasts collected by Dukascopy among the visitors of the website during a month, it may seem that traders do not expect EUR/USD to follow a strong trend, since the consensus is at 1.1366. But the reality is different, being that the distribution of the votes is non-normal, it is bimodal: 16% of the surveyed believe that by mid-January the Euro will be worth between 110 and 108 cents, while almost the same portion (15%) believes that the Euro will be worth considerably more in the future, namely somewhere between 122 and 120 cents. © Dukascopy Bank SA