- Material increase in the share of buy orders
- 61% of positions are now short
- Rising wedge in the hourly chart has been broken to the upside
- Pair has a good chance to visit monthly R2 at 1.1613
- Economic events to watch in the next 24 hours: US (Core) CPI (Sep), Unemployment Claims, Philadelphia Fed Manufacturing Index (Oct), FOMC Member Dudley Speech
© Bloomberg
Industrial production in the Euro zone dropped in August, adding to signs that slowdown in China as well as downturn in other emerging economies are starting to taking their toll on the currency bloc's economy. The output produced by manufacturers, mines and utilities in the Euro area declined 0.5% on a seasonally adjusted basis in August, following the 0.6% gain. Measured on an annual basis, industrial production increased 0.9%, compared with 1.9% growth in July. The decrease in production was led by Germany, the Euro zone's manufacturing powerhouse. Industrial output also edged lower in Spain and Italy, but jumped by 1.6% in France, the Euro zone's second-largest economy. The Euro zone's economy is predicted to grow 1.5% this year and 1.6% in 2016, according to the International Monetary Fund. Economic output in the single currency bloc rose 0.4% on a quarterly basis in the April-June period for an annual 1.5%, with household spending giving a boost to the recovery.
Meanwhile, inflation in the Euro zone's second biggest economy remained benign in September. In monthly terms, French CPI decreased 0.4%, while the cost of living posted zero growth in the reported month.
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US consumer price index to accelerate decline; core inflation to stay barely positive
Considering the number and importance of today's events, there are likely to be exceptionally high levels of volatility around 12:30 pm GMT. The highlight of Thursday is expected to be the US inflation, which is the main variable for the Fed in decision on the rate hike. Against this kind of background the impact of the weekly release of the unempoyment claims is to be decreased, but it nevertheless could act as a catalyst or a restraint. One and a half hours later Philadelphia Fed manufacturing index is expected to show slower worsening of conditions in October than a month earlier.
Read More: Fundamental Analysis
EUR/USD to extend recovery
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.The fundamentals overrode technicals yesterday, and weak US data threw EUR/USD over several important resistances, paving the way for an extension of this rally. The upside is no longer limited by the monthly R1 and September high. And even though the long-term indicators are bearish, the pair has a good chance to visit monthly R2 at 1.1613 and even attempt to break higher. Still, we would like to see confirmation of the new support at 1.1450 first.
Daily chart
© Dukascopy Bank SA
The rising wedge in the hourly chart has been broken to the upside, meaning we no longer have any reasons to hold a bearish bias with respect to the European currency. By the looks of it, the price will now be aiming for 1.19, which is the upper boundary of the emerging channel in the daily chart.
Hourly chart
© Dukascopy Bank SA
Read More: Technical Analysis
Traders are mostly short
The SWFX sentiment is now better aligned with the data provided by the other brokers. OANDA's and SAXO Bank's clients are also net short the Euro. In the first case the difference is 28 percentage points, while in the second it even amounts to 40 pp.
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