- Sentiment is worsening, as bearish SWFX portion grew to 57% from 55%
- Commands are also largely set to sell the Euro on Tuesday
- Key resistance for the pair is located at 1.0940, namely a two-month downtrend line
- Daily indicators have changed from bearish to mixed over Monday
- Economic events to watch in the next 24 hours: Spanish Unemployment Change (Jan); German Unemployment Change and Unemployment Rate (Jan); Italian Unemployment Rate (Dec); Euro zone Unemployment Rate (Dec) and PPI (Dec); FOMC Member George Speaks
Growth in the Euro zone manufacturing sector eased in January. According to Markit, the Euro bloc's manufacturing PMI dropped to 52.3 last month, compared with 53.2 recorded in December. The rates of growth of output, new orders, and new export business all weakened in the reported month. As for individual countries, the bright spot was Spain, where the manufacturing sector enjoyed the sharpest expansion in eight month in January. The Euro zone's fourth largest economy's factories saw their activity increase in January to 55.4, compared with December's reading of 53.0. The country's manufacturing sector has seen surging activity since November 2013, when the last reading below 50 was booked at 48.6. Fundamentals for the Spanish economy in January showed some positive improvements and 2016 so far appears to be a year of further recovery after years in a deep financial crisis. Spain's economy managed to grow at the end of last year, The country's economy expanded by 0.8% in the fourth quarter. On an annual basis, the nation's economy grew 3.5%, compared to the previous figure of 3.4% and expectations that it would remain the same. Meanwhile, in France, the Euro zone's second biggest economy, the manufacturing PMI booked 50.0 in January, down from 51.4 in the prior month. The German manufacturing also disappointed.
The Reserve Bank of Australia decided to maintain the official cash rate unchanged for the eight consecutive month, and remained sanguine about the domestic economy, with inflation close to the target. Despite the improvement in domestic data, markets are pricing in a high chance of further easing this year, with a rate cut to 1.75% by September already fully priced in. Nevertheless, the central bank kept a clear easing bias amid continued low inflation, which provides scope for easier policy, and expressed concerns about recent market volatility. Underlying inflation continued to hover near the lower end of the central bank's 2%-3% target band in the final quarter of 2015, while headline inflation rose to 1.7%, up from 1.5%. The RBA last moved in May 2015, when it slashed the key interest rate by 25 basis points to the historic low. For now, the central bank will remain in a wait-and-see mode and continue to monitor effects of recent global financial markets turmoil and a slowdown in China on the Australian economy. Unlike statements last year, the RBA did not mention its concern about the current level of the Australian Dollar, just saying "the exchange rate has continued its adjustment to the evolving economic outlook". Since the RBA's last policy meeting in December, the Aussie Dollar has lost 2.8% versus the US counterpart and is down 2.6% on a TWI basis.
Upcoming fundamentals: Euro zone unemployment data, FOMC's George to speak
Unemployment statistics for the Euro zone will be the main driver of the European trading session this Tuesday. Spanish employment numbers are extremely strongly influenced by seasonal factors, such as tourism and agriculture. In January the total number of unemployed persons is set to surge by 71,000 after a decrease of 55,800 in December. German jobless numbers will maintain a more encouraging bias, as economists see the negative unemployment change of 8,000 in January and the unemployment rate should remain at 6.3%. For the whole Euro zone, we expect statistics to come out at 10:00 GMT. There the average result of a survey assumes no change in the rate of unemployment in the currency bloc at 10.5%.
EUR/USD recovers as risk appetite wanes
The single currency is holding to the gains that it has registered over the first trading day of a new working week. EUR/USD failed to consolidate below the Dec-Jan uptrend line, meaning the idea of bearish correction is postponed for some time in the future. Growth above 1.09 exposes the Dec-Jan downtrend near 1.0940, which had earlier refused the bullish scenario for three times. This line is immediately followed by 100-day SMA at 1.0962 and the monthly R1 at 1.0972. Only a spike above here will imply the 200-day SMA (1.1053) is at risk.Daily chart
The pair has eroded the 200-hour SMA in the 1H chart. Bullish traders experienced no issues in penetrating this resistance at 1.0864, meaning now the core focus is on the January downtrend at 1.0950, followed by Dec-Jan uptrend just below 1.10.
Hourly chart
Bullish market share slides down as traders see Dollar higher
Along with the SWFX market, confidence in the 19-nation currency plunged in terms of OANDA and SAXO Bank distribution of open positions. EUR/USD's sentiment has renewed its status to be the worst one at OANDA, as only 41.88% of all transactions tend to prefer the Euro. Advantage of the shorts is even higher at SAXO Bank, where they account for 68.12% of the entire market.