EUR/USD to set fresh eight-month lows

Source: Dukascopy Bank SA
  • Bulls gained 56% of SWFX market, up from 55% yesterday
  • Broad range (100-pip) pending orders are still set to sell the Euro in 65% of all cases
  • US inflation statistics estimated to have material influence on EUR/USD today
  • Daily technical indicators are scattered; no unanimity is observed anymore
  • Economic events to watch in the next 24 hours: Italian Trade Balance (Sep); German and Euro zone ZEW Economic Sentiment (Nov); US CPI (Oct) and Industrial Production (Oct)

© Dukascopy Bank SA
The Euro continued to slump against G8 currencies on Monday, the first trading day of this week. Paris terrorist attacks made the Euro area's medium term economic outlook even more uncertain, which led to market sell-off of the single currency yesterday. At the same time, equity markets remained unexpectedly calm when pricing those events, while Euro zone's better than forecasted inflation data used to have little impact on the Euro. EUR/USD and EUR/CAD were the main losers of the day as they tumbled 0.8% and 0.7%, respectively. Apart from EUR/GBP (-0.52%), other currency pairs of the Euro failed to drop by more than 0.4%.

Inflation returned to the Euro bloc last month, a revised data by the EU's statistics agency showed, led by price increases for fruit and vegetables. According to Eurostat, consumer prices in the currency area edged up 0.1% in October from a year earlier. Excluding volatile components of food and energy, core inflation climbed 1.0% on year, following a 0.8% gain in September. Measured on a monthly basis consumer prices climbed 0.2% in the reported month. The modest upward revision is unlikely to have a major impact on the view of ECB policy makers, when they review the central bank's stimulus programme next month. The ECB strives to ensure an inflation rate of just under 2%. However, energy prices kept inflation from rising further, as the cost declined 8.5% on an annual basis in October, following a 8.9% decrease in the preceding month.

Using the Harmonized Index of Consumer Prices, the barometer used by the ECB to compare price developments in countries across the bloc, the annual inflation rate in Euro zone added 1.1%. In September, it gave up 0.2%, recording the first drop in eight months. Analysts assume that the attacks in Paris could weigh on inflation if it leads to a near-term impact on economic activity across the Euro zone.

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Upcoming fundamentals: Will German ZEW sentiment disappoint again?



For the past nine months the German ZEW economic sentiment indicator has constantly showed worse than expected numbers. All in all, the index has been falling every month since March of this year, dropping from 54.8 points that month to just 1.9 points in October on the back of global economic weakness and little optimism over recovery in the Euro area. Nevertheless, analysts estimate ZEW to grow to 6.7 points in November when it is released at 10:00 GMT. Meanwhile, Italian trade balance data is due at 9:00 GMT and the balance is forecasted to remain in the surplus for a thirty first month in a row.


EUR/USD to set fresh eight-month lows

EUR/USD traded on the downside yesterday, owing to uncertainty over European economic outlook and despite positive inflation data. The newest eight-month low at 1.0650 has already been touched Tuesday morning. We are now fully focusing on the April low at 1.0519, the closest major support which is reinforced by the monthly S2, weekly S3 and lower Bollinger band from above. Intermediate demand is offered by the weekly S2 at 1.0602. Trading volume remains at the highest level in three weeks, meaning volatility of the market may persist in the nearest future.

Daily chart
© Dukascopy Bank SA

The observed cross keeps hovering within the boundaries of a bearish channel in the one-hour chart. Losses seem to be extending lower to the 1.05 mark in the next few days, if the current downward trend remains in place. 200-hour SMA is merging with the upper trend-line for the moment, representing extra bearish risk for EUR/USD.

Hourly chart
© Dukascopy Bank SA

Euro-positive market sentiment picks up further

Sentiment among SWFX market participants continued to tick higher in the past 24 hours, after EUR/USD has touched the new low for the first time since April 2015. At the moment bulls are keeping 56% of all trades in the SWFX market, the highest level in more than three months. Positive expectations, however, are still not shared by the pending orders set to buy the 19-nation currency. Long commands in 100-pip range from the spot price have a share of just 35% on Tuesday, down from 39% on a day-to-day basis.

Meantime, sentiment among OANDA clients has been largely flat during Monday as bulls are holding 52.3% of all positions opened there. SAXO Bank traders are finally nearing the break-even point when bulls and bears are going to keep the equal number of open trades. Nevertheless, the bears are still enjoying a slight majority in the SAXO Bank market, namely 50.59%.










Spreads (avg,pip) / Trading volume / Volatility



Average forecast says EUR/USD will trade at 1.11 by February 2016

Meanwhile, traders, who were asked regarding their longer-term views on EUR/USD between Oct 17 and Nov 17 expect, on average, to see the currency pair around 1.11 by the end of next year's February. Majority of participants, namely 59% of them, believe the exchange rate will be generally below 1.12 in ninety days, with 39% alone seeing it below 1.08. Alongside, only 15% of those surveyed reckon the price will trade in the range between 1.12 and 1.18 by the end of February 2016.

© Dukascopy Bank SA

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