- 55% of all SWFX market positions are short
- Pending commands are placed to sell the Euro in >60% of all cases
- Weekly pivot point at 1.1250 acts as the first resistance line, while 100-day SMA at 1.1161 is the closest support
- Daily technical signals turned negative on EUR/USD
- Economic events to watch over the next 24 hours: German ZEW Economic Sentiment (May); US New Home Sales (Apr)
An important economic indicator of the Euro zone's economic health dropped in May to its lowest level in 16 months despite the efforts of the ECB to boost growth and business activity in the region. The flash Eurozone PMI Composite Output Index indicated that business activity in the 19-country region slid to 52.9 in May from 53.0 in April, failing to meet analysts' expectations for an estimated 53.2. Moreover, a separate research of the bloc's factory arena showed the flash Manufacturing PMI was at 51.5 in May, compared to 51.7 seen in the previous month, while economic forecast was on 51.9. Meanwhile, conditions in the Euro zone services sector remained unchanged as the gauge came in at 53.1, the same as in April, while analysts expected a slight improvement to 53.3 in May. A level below 50.0 signals a drop from the previous month, while a level above signals an increase. Thus, the latest PMIs suggest that economic growth has slowed in the Euro area in the second quarter and that business activity remained subdued. Moreover, earlier in the month, the European Commission lowered its forecast for economic growth across the Euro zone to a 1.8% expansion of GDP for 2016 and 2017, which is ten basis points down from the previous forecast. However, it is considered that investment is likely to pick up next year, rising to 3.8% of GDP, yet unemployment will remain high at 10.3% this year and 9.9% in 2017.
Business activity in the US manufacturing sector continued to decline in May with new orders increasing at the slowest rate so far this year, as manufacturers have been hit hard by a stronger US Dollar and tepid global demand. Markit's preliminary manufacturing PMI eased to 50.5 this month, down from 50.8 in April, when it logged the worst performance since September 2009. The gauge remained well below the post-crisis average of 54.1. A renewed decline in production was one key factor weighing on the headline index in May, alongside softer new order growth and further cuts to stocks of inputs. The data comes at a time when the whole sector has been facing stark headwinds blowing from Greenback's appreciation, a slowing China's economy, and a volatile stock market. Furthermore, lower oil prices have hit manufacturers tied to the energy industry, undermining burgeoning domestic production, lowering demand for steel and drilling equipment and other manufactured products used in the industry. Nevertheless, last week the US Federal Reserve increased expectations for a June interest rate hike by saying the market was not taking the possibility of a hike seriously enough, according to the minutes of its latest policy meeting.
Upcoming fundamentals: German economic activity set to advance in May
The ZEW Institute will release the economic sentiment indicator for Germany this morning at 9:00 GMT. Markets are presented with an average economists' forecast of 12 points this time for the May index, up from 11.2 points the reading had showed one month ago. If it meets expectations, the ZEW economic sentiment for the Euro zone's largest economy will climb to the highest level since December 2015. Meanwhile, finance ministers of all Euro zone countries are meeting today in Brussels for a scheduled gathering. Officials are going to discuss the Greek debt deal. They will present the International Monetary Fund with a deal regarding sustainability of Greek debt until 2023.
EUR/USD in limbo around 1.12
While the bulls have attempted to send the EUR/USD pair above 1.1240 on Monday, their bearish peers tried to close it below 1.1190 amid hike-supportive speeches of Fed officials. As a result, the session was finished with no definite lead of any side at the 1.1220 marker. At the moment we see the exchange rate bounded between the weekly pivot at 1.1250, while the key support is represented by the 100-day SMA and weekly S1 at 1.1161 and 1.1152, respectively. Consolidation beyond any of these areas will shift the present neutral short-term outlook. Daily technical indicators, however, are indicating to the downside.Daily chart
According to the narrower time frame's development, the cross may easily fail throughout the US session on Tuesday. This is when the rate will encounter the northern boundary of the descending channel pattern, namely the mid-May downtrend at 1.1225. We would allow for an initial failure down to the March 24 low at 1.1143, followed by the pattern's southern downtrend at 1.1110. Alternatively, a surge above the 1.1225 level may accelerate purchases of the common European currency with the most immediate bullish goal at the 200-hour SMA (1.1283).
Hourly chart
Bears hold to their majority of 55% over bulls
Sentiments of both OANDA and SAXO Bank marketplaces are also bearish towards the researched currency pair. OANDA clients are 54.76% negative today, while about 62.53% of SAXO Bank positions maintain the short future outlook too.