EUR/USD extends weakness

Source: Dukascopy Bank SA
  • SWFX market sentiment is 60% bullish
  • Trader pending orders are 68% to sell
  • Pair opened Friday's session at the 1.0628 level
  • Aggregate daily technical indicators bet EUR/USD will enter a ranging market
  • Economic events to watch over the next 24 hours: Draghi's Speech
EUR/USD remained in low-volatility territory, not showing a single green daily candle since November 6. The pair put an end to the consolidation phase on October 9, entering a period of distinct weakness while leaving volatility largely unchanged. With SMAs floating high above the current rate, we will look at tests of 1.0556, but it is unlikely that levels underneath will become subject of attention. On a larger scale, 1.0462, the 2015 low remains of highest risk for future movements, meaning that the pair will have to build up some serious bearish potential to extend its weakness below the area.

US consumer prices see the biggest increase in six months in October amid higher gasoline and rent costs. According to the US Department of Labor, the Consumer Price Index advanced 0.4% last month, following September's gain of 0.3%. On a yearly basis, consumer prices grew 1.6% in October, the largest annual increase since October 2014, up from the preceding month's 1.5%. Both readings came in line with analysts' expectations. Nevertheless, the so-called core CPI, which excludes prices for volatile items such as energy and food, rose 0.1% in the reported month, unchanged from September, while market analysts anticipated a slight increase to 0.2%. Year-over-year, core consumer prices fell to 2.1% in October, following the prior month's 2.2% gain. Higher inflation as well as the strong labor market are likely to encourage the Federal Reserve to raise its key interest rates at its next meeting in December. The Central bank increased its key overnight interest rate in December 2015 for the first time since the global financial crisis. The Labor Department said gasoline prices surged 7.0%, up from September's 5.8%, whereas food prices remained unchanged. Within components of the core CPI, rents rose 0.4%, while medical care costs were unchanged. The price of prescription drugs rose 0.2%.

The single currency economy expanded in the third quarter, showing a 0.3% in the region's gross domestic product (GDP) on the previous three months and up 1.6% on a yearly basis. The figures were spurred by a rebound in smaller countries, including Portugal, which saw its fastest growth pace since 2013. During the last week, the European Commission cut its GDP forecasts for the euro area on advanced political uncertainty and weaker global trade. The EU expects the currency bloc to grow 1.7% this year and 1.5% in 2017, after climbing 2% in 2015. In the meantime European stocks were mixed on Tuesday, as market sentiment remained globally positive following the election of Donald Trump as president of the United States last week, while disappointing German third-quarter growth weighed. Moreover, earlier on Tuesday, preliminary data showed that German gross domestic product went up 2% in the third quarter, disappointing expectations for an increase of 0.3% and down from a growth rate of 0.4% in the previous quarter.

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Upcoming fundamentals: Draghi's Speech

Volatility could be induced from the Euro side by Mr. Draghi's speech at 8:30 on Friday morning, but might also come from a set of FOMC member speeches in the US that will take place from 14:30 GMT. It remains, however, unlikely that the statements could shake the EUR/USD market significantly.



EUR/USD continues streak of losses

Daily chart: EUR/USD opened red for the tenth session in a row, eyeing 1.0556, the bottom Bollinger Band – hourly channel bottom trend-line confluence. There is little possibility that a break below the area would allow to extend weakness underneath 1.0525, meaning that we should see some demand pressures distracting the downward motion. The movement is facilitated by SMA pressures from above, and is technically reasoned by the conclusive break below the bottom trend-line of the eight-month descending channel.

Daily chart
© Dukascopy Bank SA

Hourly chart: The pair added some boundaries on the hourly chart, sketching a channel-like formation that still requires confirmation. After tapping the upper trend-line of the channel, the pair is on its way to approach the bottom Bollinger Band at 1.0548. There is little doubt for a downward sloping scenario, facilitated by a red cloud and various time-frame SMAs floating above the current movements. The pair will ultimately address the bottom trend-line of the week-long channel at 1.0522 after falsely breaking the upper boundary on Thursday.

Hourly chart
© Dukascopy Bank SA


Traders expand their bullish stance

Traders have become more optimistic than they were on Thursday's trading session. Open positions are 60% long, and pending orders are still bearish, namely 68% of pending commands are to sell.


OANDA traders have increased their bearish outlook, as 67.11% of open EUR/USD positions are long on Tuesday, compared to 66.07% long positions on Tuesday. Additionally, SAXO Bank clients have shifted to a bullish outlook as well, as 57.36% open positions are long, compared to 50.46% during the previous trading session.

Spreads (avg,pip) / Trading volume / Volatility



Average forecast says EUR/USD will trade around 1.09 in February

Traders, who were asked about their longer-term views on EUR/USD between October 18 and November 18 expect, on average, the currency pair to trade around 1.09 in mid-February. In addition to 39% (-1%) of participants believing the exchange rate will be generally above 1.10 in ninety days, 14% alone see it above 1.16. Alongside, 61% of those surveyed reckon the price will trade below 1.10 in three months.

© Dukascopy Bank SA

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