- Advantage of bulls over bears is only two percentage points (51% vs 49%)
- Pending orders in 100-pip range give 60% share to bearish market participants
- Greater number of FOMC rate dissenters may push EUR/USD below 1.10 on Wednesday
- Daily technical indicators changed from bullish to mixed
- Economic events to watch in the next 24 hours: German GfK Consumer Confidence (Nov); US Goods Trade balance (Sep) and Crude Oil Inventories (Oct 23); FOMC Interest Rate Decision
The European Central Bank may need to deploy additional measures to underpin prices, as inflation failed to recover as fast as policy makers has anticipated, Executive Board member Benoit Coeure said. The central bank may need to cut its deposit rate further from its current –0.2%, if inflation in the Euro region remains subdued for longer than expected. Markets are already pricing in a reduction to –0.3% when the Governing Council meets in December. Last week, ECB President Mario Draghi said declining inflation expectations, driven partly by lower-than-expected demand for oil, have forced the central bank to weigh a wide variety of possible measures, including a deposit rate cut.
In January, the ECB announced its plan to recover Euro zone's fragile economy by purchasing bonds worth 60 billion euros per month. The 19-month scheme is expected to inject 1.1 trillion euros into the stagnant economy until September 2016. However, a precipitous slowdown in China and other emerging markets, lower oil prices, soft inflationary pressures in the Euro zone and overall sluggish growth may force the central bank to consider additional steps to reach its inflation and economic growth targets.
Separately, the Conference Board reported that US consumer confidence dropped to 97.6 this month from a revised 102.6 in September. The board's Present Situation Index declined to 112.1 in October, from 120.3 in September. The share of consumers expecting more jobs in the months ahead fell to 14.5% from 14.9%, while the share of those expecting fewer jobs climbed by 1% to 16.9%.
Upcoming fundamentals: US trade balance, Fed rate decision
There are no important fundamentals expected to be released in Europe on Wednesday. Their place in the headlines will be overtaken by US news. The Goods Trade Balance is first up at 12:30 GMT and the deficit is forecasted to decline from $67.2 billion to $64.9 billion in September. Additionally, US oil reserves have probably continued to rise for the week ended October 23, after the indicator saw a massive surge one week before. In the meantime, the Federal Reserve in highly unlikely to increase the target range for the Fed Funds rate today from the current level of 0-0.25%. The decision is out at 18:00 GMT, while markets are predominantly focusing on clearer indicators for December when there is going to be a press-conference of Janet Yellen and new economic projections for the US will be ready.
EUR/USD attempts to consolidate below 1.1050
EUR/USD treaded water during the session on Tuesday. The range of trading did not exceed 50 pips, while important US fundamentals failed to provide this currency pair with any momentum. Bears want to push the cross below monthly S1 at 1.1022, but they will have to overcome the long term downtrend at first. As the US is heading towards FOMC meeting later on Wednesday, EUR/USD will most likely remain vulnerable to any influential events. In case more members decide to vote for a rate hike, we may see the cross trading below 1.10. Meanwhile, daily indicators prefer to stay neutral at the moment.Daily chart
In the one-hour chart the consolidation below both Sep low and downtrend line has eventually taken place. This is confirmed by the pair's trading around 1.1040 for the third consecutive day. The short term outlook is therefore shifting to the downside, while initial bearish target is the major psychological mark of 1.10, followed by the monthly S2 at 1.0868.
Hourly chart
SWFX sentiment back to 51/49; bullish orders lose more ground
Meanwhile, the majority (55%) of SAXO Bank clients still expect EUR/USD to lose value. However, OANDA traders continue to be bullish on the matter, with long trades accounting for 54% of all open positions there.
Spreads (avg,pip) / Trading volume / Volatility
Community members forecast the Euro to grow against the US Dollar this week
Comparing to the previous week, participants of the last week's quiz stayed mostly unchanged on their view about pair's future perspectives, as now 56% of them are staying bullish on the currency pair. The vast majority of traders expect the pair to outperform the current trading levels.
According to Likerty who supports the bullish move "The US Dollar is showing intentions for a prolonged (up to few months) cycle of weakness, recent EUR/USD bearishness will trap many sellers on the way up. This week should be crucial, while clues should come from Yen and Gold."