EUR/USD drops down to 1.1035 before ECB meeting

Source: Dukascopy Bank SA
  • Commands to buy the Euro versus the US Dollar in 100-pip range are positive (58% bullish / 42% bearish)
  • The closest resistance for this pair is located at 1.1065
  • At the same time, the closest support is currently placed at 1.1035
  • Upcoming events on March 6: Germany Industrial Production (Jan), France Budget Balance (Jan) and Trade Balance (Jan), Euro zone GDP (Q4), US Non-Farm Payrolls (Feb), Unemployment Rate (Feb) and Trade Balance (Jan)

© Dukascopy Bank SA
The Euro used to be a clear under-performer during trading on Wednesday as market is awaiting the upcoming meeting of the European Central Bank, where details on the QE programme should be announced. As a result of these expectations, EUR/CAD and EUR/NZD slipped the most by 1.43% and 1.40%. Other currency pairs followed, while Euro/Dollar and Euro/Aussie currency crosses were both down by 0.88%.

Retail sales in the currency bloc rose for the fourth consecutive month in January and the quickest pace in more than nine years. The sustained increase in sales was supported by household spending power due to lower oil prices, which have freed up cash for Europeans to spend on other goods and services. Sales soared 3.7% in 12 months to January, topping economists' expectations for a 1.9% rise.

On top of that, Markit's composite PMI, which measures business activity in Euro zone manufacturing and services sectors, climbed to 53.7 in February, compared with 52.6 booked a month earlier. In Germany, services sector improved last month, with the corresponding gauge rising to 54.7 in February, up from 54.0 in the preceding month.

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Euro zone to revise GDP numbers on Friday

On the last day of this working week, there is a big number of fundamental news that is getting ready to be release and which is likely to influence the EUR/USD pair significantly. Among some of them, the Euro zone is publishing the final GDP numbers for the last quarter of 2014, while economic growth can be adjusted slightly upwards. Moreover, US economy is forecasted to have added 240,000 new jobs in February and the jobless rate has probably decreased back to 5.6%.


EUR/USD set to weaken in the long-term

The long-term outlook for the EUR/USD currency pair is remaining bearish. On January 22, the ECB has made a long-awaited decision to expand its asset purchases which will continue pushing the Euro to the downside. Moreover, the lowest point since the year 2003 around 1.1113 has already been hit by EUR/USD cross. Taking into account present monetary conditions and bearish outlook for the Euro, the pair has a chance to go below 1.10 towards the end of the first quarter of this year. Short-term bullish actions may take place, but their impact and size are not expected to be appropriate for the common currency to commence a stable recovery in the long-run. Moreover, some market participants suggest it may fall further and even trade towards the parity in course of this year.

Daily chart
© Dukascopy Bank SA

After a considerable drop back yesterday, the EUR/USD pair continues declining on Thursday morning as well. On Wednesday it lost more than 100 pips and is getting additional 40-pip hit today. The Euro has already crossed weekly and monthly S1 support lines and approached the next demand zone at 1.1035 (weekly S2), where a new 2015 low has been set. If this level fails to act as strong support, a decline down to 1.0943 (monthly S2) is not off the table, depending on what Mario Draghi reveals today during the ECB meeting in Cyprus.

Hourly chart
© Dukascopy Bank SA
Read More: Technical Analysis

EUR/USD sentiment and pending orders change to positive

Bullish opened positions at the SWFX market are accounting for 53% in the morning on Thursday. It speaks for a daily increase of five percentage points after a considerable drop in pair's value on Wednesday. In the meantime, OANDA traders are currently holding 52.48% in long opened positions, down from 53.33% around 24 hours ago. However, SaxoGroup sentiment is still pessimistic toward the 19-nation currency and bulls account for just 48% of all traders by 6:45 GMT on Thursday.

Additionally, some of SWFX traders fixed their profit on short trades as pending orders to buy the Euro against the US Dollar in 100-pip range from the spot have also advanced notably to reach 58% this morning. It proclaims that in case the EUR/USD rises in value, the pair's potential rebound can be extended up to the weekly S1 at 1.1116. On the other hand, a potential downward development of the Euro is considered to be stopped by the monthly S2 at 1.0943.









Spreads (avg,pip) / Trading volume / Volatility





Community is waiting for the Euro to decline this week

© Dukascopy Bank SA
During February 23-27 time period the Dukascopy Community members assume this currency pair will slump further, since more than 53% of all votes are bearish. As predicted by traders, the EUR/USD may close around 1.1321 level this Friday. Concerning important news from the Euro area, market participants can pay attention to the revised data on service sector output, as well as on the report on retail sales on Wednesday. The ECB is also to announce its monetary policy decision a day after. The US, in turn, is to round up the week with the report on non-farm payrolls.


Jignesh, one of the community members participating in the survey, motivates his bearish outlook towards the common currency by saying that "EUR/USD is quite oversold at current levels after a strong CPI number, which drove the USD back to resistance." He also added that there are important "NFP numbers will be released, which should trigger some USD buying toward the end of the week."

Meanwhile, traders, who were asked regarding their longer-term views on EUR/USD between Feb 5 and Mar 5 expect, on average, to see the currency pair around 1.13 by the end of June. Though the majority of participants, namely 52% of them, believe the exchange rate will drop down even below 1.12 in ninety days, with 23% alone seeing it below 1.08. Alongside, 23% of those surveyed reckon the price will trade in the range between 1.12 and 1.18 by the end of June of this year.
© Dukascopy Bank SA

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