- Advantage of bulls over bears rose to four percentage points (52%/48%)
- Pending orders in 100-pip range continue giving a 60% share to bears
- Closest support is offered by 1.0879/68 area, followed by July low at 1.0808
- Daily technical indicators remain mixed after Fed meeting
- Economic events to watch in the next 24 hours: Spanish HICP (Oct) and Retail Sales (Sep); German Prelim CPI, Unemployment Change and Unemployment Rate (Oct); Euro zone Business Climate and Consumer Confidence (Oct); US Advance GDP (Q3), Unemployment Claims (Oct 23) and Pending Home Sales (Sep)
The European Central Bank's quantitative easing programme requires time to produce the desired results, namely to underpin price growth in the Euro zone, said Christian Noyer, an outgoing member of the ECB's governing council. Noyer said that "the current program is functioning well", arguing that it is too early to talk about its full effect, as the central bank's QE has been running for just six months. He has been against the idea to expand the programme, as it might prove to be a premature decision. Noyer has been supported by another policy maker, Ardo Hansson, governor of Estonia's central bank, who said that there is no need at the moment for the ECB to announce further stimulus measures at its next meeting in December. Hansson calls for patience to give the policies a bit more time to have an effect. At the same time, Executive Board member Benoit Coeure said the ECB may need to deploy additional measures to underpin prices, as inflation failed to recover as fast as policy makers has anticipated. 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.
Separately, as widely expected the Fed maintained its key interest rates unchanged at its October meeting. But what is more important is the fact the US central bank explicitly stated that it might hike short-term interest rates in December, downplaying recent global financial market turbulence and saying the US labour market was strengthening despite a slower pace of job growth. Individual central bankers have signalled before that they expected to start normalizing monetary policy before year-end. The Fed's FOMC had not previously stated so explicitly in a communique the potential timing of a rate hike. Investors were quick to change their mind, with futures contracts suggesting a 48% possibility of an interest rate hike in December compared to 34% prior to the Fed's statement. Fed officials noted that household spending, which makes up 70% of economic activity, and business fixed investment rose at a solid pace in recent months, coupled with a further strengthening in the housing sector, whereas net exports have been soft.
Upcoming fundamentals: German and Spanish CPI; US Advance GDP in focus
Annual inflation in Spain (8:00 GMT) is estimated to remain in negative territory, but analysts project an improvement from -0.9% in September to -0.6% last month. Additionally, Germany's month-on-month consumer price index is estimated to fall by 0.1%, while the data is due at 13:00 GMT. On the German side, the country's total numbers of unemployed persons is assumed to slide by 5,000 in October, while the jobless rate should remain steady at 6.4% (data at 8:55 GMT). Investors, however, are closely watching the US third quarter's first-estimate GDP number, which is likely to influence US Dollar a lot today. The pace of economic growth has probably slowed down from 3.9% in Q2 to 1.6% in July-September. If reality matches expectations, a GDP increase will also see a drop from 4.3% seen in the third quarter of 2014.
EUR/USD loses 150 pips, touches 1.09
Yesterday markets were driven by the decision of the Fed to project a possible a rate hike in December. EUR/USD was therefore provided with substantial bearish momentum and it tumbled towards the 1.09 mark, losing 150 pips in the past 24 hours. Strongest demand is still ahead of the spot price. Bears are aiming at the weekly S1/monthly S2 at 1.0879/68, but another support is offered by May/July lows at 1.0819/08. These levels can be tested, in case US GDP growth exceeds estimates on Thursday. Otherwise, a rebound back to 1.1020 is likely on the back of disappointing numbers.Daily chart
Continuous bearish risks are supported by the one-hour chart for the EUR/USD currency pair. As we are watching the US Advance GDP report on Thursday, it will be important to observe, whether any miss from forecasts will be able to drive EUR/USD back above Sep low at 1.1085.
Hourly chart
SWFX distribution changed to 52/48; pending orders flat
Alongside, the majority (55%) of SAXO Bank clients still expect EUR/USD to lose value, no change from yesterday. However, OANDA traders continue to be bullish on the common European currency, with long trades accounting for 55% of the market.
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."