EUR/USD on track to erode weekly losses

Source: Dukascopy Bank SA
  • Bulls account for 52% of SWFX market, down from 54% yesterday
  • Bullish majority of pending orders was short-lived as short traders regained strength (59%)
  • ECB President Draghi expected to hint at extra December stimulus
  • Daily technical indicators turned bearish, while weekly studies foresee sideways movement
  • Economic events to watch in the next 24 hours: German PPI (Oct); ECB President Draghi Speaks; Bundesbank President Weidmann Speaks; Euro zone Consumer Confidence (Nov); FOMC Member Dudley Speaks

© Dukascopy Bank SA
Even though the Fed has literally confirmed that interest rates are likely to start rising next month, the pace of policy normalization will be slow and gradual. These projections pushed the US Dollar, which seems to have already priced in the rate hike, down by 0.7% against the Euro. EUR/CAD was the second-best performing currency on Thursday as it rallied by 0.6% amid tumbling wholesale sales in Canada. EUR/GBP added 0.3% after somewhat disappointing retail sales from the UK, which slid by 0.6% in October. Two currency pairs, EUR/AUD and EUR/NZD, posted well-pronounced losses throughout the session on Thursday. Commodity currencies were helped by oil prices which managed to stop falling beyond $40 per barrel.

The European Central Bank considered expanding its stimulus programme to support Euro zone's struggling economy at its last policy meeting. Moreover, the ECB admitted that the risk increased that the central bank would again miss its inflation target. Even though the ECB's measures proved to be effective, the central bank receives little help from outside as government reform efforts were disappointing and the European Commission investment programme lacked momentum. The minutes of the meeting showed that the threat of growth-sapping deflation has intensified since the ECB's projections in September and the central bank is predicting that the inflation rate will take longer to move back to its 2% goal. Thus, the ECB is left with two options: either to acknowledge that it is unable to fulfil its objective or to take more forceful action with a broader set of tools. The council members said they would re-examine the degree of policy accommodation at its December meeting. In addition to that, recent speeches from ECB members Peter Praet and Yves Mersch only added to the view that more easing is coming. Another Governing Council member, Ignazio Visco, said that the Paris attack could hurt confidence and make the economic recovery of investment in Europe more difficult to sustain.

The number of initial jobless claims in the US continued to hover near the lowest level in four decades last week as the labour market improves to reach full employment. Initial claims for state unemployment benefits dropped 5,000 to a seasonally adjusted 271,000 for the week ended November 14, according to the Labor Department. Claims remained below the 300,000 threshold for 37 straight weeks, the longest stretch in years. The four-week moving average of claims, considered a better gauge of labour market trends as it irons out weekly volatility, increased to 3,000 to 270,750 last week, remaining close to a 42-year low. Steady demand encouraged employers to hold the line on firings as a tighter labour market makes it difficult to attract skilled workers. Employment has shown enough signs of resilience to allow Fed policy makers to consider raising rates for the first time in almost a decade.

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Upcoming fundamentals: Any more QE hints from Draghi?



At 9:00 GMT the president of the European Central Bank Mario Draghi is due to deliver a speech at the Euro Finance Week in Frankfurt, Germany. Many analysts expect him to mention the possibility of additional monetary support at the regulator's meeting in December. Speaking in the European Parliament earlier this month, Draghi has already underlined that more QE remains an open possibility due to weak economic growth and low inflation in the Euro area. Meanwhile, the New York Fed President William Dudley will talk about the economy at Hofstra University in New York City at 16:15 GMT.


EUR/USD on track to erode weekly losses

Yesterday the EUR/USD cross strengthened the most since Nov 12, by piercing through the 1.07 mark and consolidating somewhat below 1.0750 by the end of trading. Both weekly pivot point and monthly S1 at 1.0758/68 are unlikely to be crossed on Friday, unless any shock for the Dollar appears unexpectedly. However, it will be enough for the pair to eliminate losses of Monday-Tuesday. In the meantime, Mario Draghi's speech later in day may renew a sell-off today. Our expectations therefore remain fairly bearish.

Daily chart
© Dukascopy Bank SA

While the daily chart assumes the Euro is still at risk of being sent to the downside, the picture is largely different in the one-hour chart. Here EUR/USD surged above 200-hour SMA at 1.0715 and keeps trading above this level for the moment. Consolidation beyond the moving average should support the Euro in the mid-term.

Hourly chart
© Dukascopy Bank SA

Euro-positive market sentiment lost two more percentage points

Sentiment among SWFX market participants declined further during Thursday session. At the moment bulls are keeping 52% of all trades in the SWFX market, down from 54% and 56% on Thursday and Wednesday, respectively. In the meantime, pending orders to buy the Euro vs US Dollar in 100-pip range from the spot dropped back below 50% and reached 41% by Friday morning. Short-range commands in 50-pip range are also bearish in the majority (54%) of all cases.

OANDA clients decided to send the bullish portion marginally above 50% today, after bears enjoyed the majority for one trading day only. SAXO Bank market participants continue closing their long positions, being that bearish percentage went up above 56% in the past 24 hours.












Spreads (avg,pip) / Trading volume / Volatility




Vast majority of Community members forecast the Euro to plummet against the US Dollar this week

© Dukascopy Bank SA

This week Dukascopy traders continue to be bearish on the European currency's perspectives as 56.2% of all votes are set to go short on the EUR/USD currency pair at the moment.


According to Likerty, "the EUR/USD is continuing its bearish decent for 1.0640's, which was indicated a few weeks ago. It is a significant level and does not only screams for a test, but is also a high-probability reversal area for bulls."

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

Meanwhile, traders, who were asked regarding their longer-term views on EUR/USD between Oct 20 and Nov 20 expect, on average, to see the currency pair around 1.11 by the end of February 2016. Though the majority of participants, namely 60% of them, believe the exchange rate will be generally below 1.12 in ninety days, with 41% alone seeing it below 1.08. Alongside, only 18% of those surveyed reckon the price will trade in the range between 1.12 and 1.18 by the end of February.

© Dukascopy Bank SA

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