- Orders: 55% to buy and 45% to sell
- Positions: 47% are long and 53% are short
- Close above 1.14 will expose September high
- Rising wedge in the hourly chart
- Economic events to watch in the next 24 hours: Euro zone industrial production (Aug), US (Core) Retail Sales (Sep), (Core) PPI (Sep)
German investor confidence dropped to the lowest level in a year, as the diesel emissions scandal at Volkswagen and slowdown in emerging markets took their toll. The ZEW Center for European Economic Research said its index of investor expectations, which aims to foresee economic developments six months ahead, plummeted to 1.9 in October down from 12.1 in the previous month. That was the seventh straight decline and compared with economists median forecast for a drop to 6.5. A gauge tracking current conditions plunged to 55.2 points from 67.5 in September, coming in against expectations for a decline to 64.7. The recent deterioration of investor morale may be attributed to concerns that slowing growth in emerging markets would undermine the export sector of Euro zone's biggest economy, while the Volkswagen emissions scandal also weighed on sentiment.
Nevertheless, the German economy remains resilient, while solid growth in the US and other key export markets should balance the weakness in trade with China. Yet, the recent report on German inflation provided no relief for the ECB, who have been struggling to revive inflation in the Euro zone. German consumer prices declined 0.2% on month in September, while in annual terms, consumer inflation was flat in September.
Impact of releases decreased amid Thursday's inflation number
The Euro completely ignored Tuesday's fundamentals, meaning we should now pay less attention to the Euro zone releases and pay more attention to the USA releases. However, reaction of the market in the near term could be muted because of the US inflation number tomorrow, as it usually happens before a major event. Nevertheless, it may turn out to be a mistake to miss today's reports on the retail sales and price level of goods and services sold by producers, as they could give an insight into what to expect on Thursday.
EUR/USD keeps grinding higher
Jean-Francois Owczarczak from Fingraphs.com is negative on EUR/USD in the long run. He thinks that "in the perspective of the strong move down late last year early this year the correction is still quite shallow, and we still believe it is only a consolidation". According to Fingraphs.com algorithms the targets below parity or just below parity could be reached in the next few quarters. As for the short term, however, Jean-Francois is bullish, and expects the currency pair to reach 1.15, possibly even 1.16, before the correction is over.Despite the gravestone doji formed on Oct 11 and proximity to a strong resistance level the bulls keep pushing the price higher. Still, the monthly R1 remains intact, and most of the monthly technical indicators are bearish, meaning the risks are skewed to the downside. However, if the price closes above 1.14, there will be a high chance of a larger rally, namely to September's high at 1.1450. The next target will be as far as the August high at 1.17.
Daily chart
In the one-hour chart the currency pair continues to trade about 30 pips above the accelerated up-trend, and there is still some room left before we reach the September high, which in turn is likely to trigger a sell-off. Another point for the bulls to consider is emergence of a rising wedge, a pattern that portends a reversal. This suggests that a slide beneath 1.1370 will probably be followed by a sharp decline.
Hourly chart
SWFX market divided; OANDA and SAXO Bank traders stay short
Elsewhere in the market there are also no significant changes in the attitude of their clients towards EUR/USD. Traders of the Canadian and Danish-based brokers remain bearish. The long/short ratio at OANDA stands at 62/38, while the gap between the bulls and bears at SAXO Bank is slightly larger - 68/32.
Spreads (avg,pip) / Trading volume / Volatility
Community expects Euro to appreciate
In a week's time, the sentiment on this currency pair changed insignificantly. This time 55% of traders predict the Euro to rise in value, while almost the same percentage of Dukascopy Community members thought this currency would gain ground last week. The mean estimate for October 16 is 1.145.
According to one of the bulls, nuonrg, "EUR/USD is on an up channel in the daily chart from March lows" and "it is not so much a bear flag any more as there have been several breaks higher". The trader believes the currency pair will move towards the upper edge of the channel, and says 1.18552 is his current objective.
But there are those who disagree. For example, bokafx is bearish on EUR/USD, arguing that the pair faces tough resistance, namely the September maximum (1.146) and monthly R1 (1.1395). As a result, he considers the current situation a good sell opportunity with a target at 1.124 (monthly pivot point).