- Bearish lead versus bulls surged to 10 p.p. by Wednesday morning (45-55% distribution)
- Pending orders improved and they are relatively neutral in both 50/100-pip ranges
- Volatility is expected to surge by Thursday's ECB meeting and US jobs' data on Friday
- Daily technical indicators suggest selling the Euro in the next 24 hours
- Economic events to watch in the next 24 hours: Spanish Unemployment Change (Nov); Euro zone CPI (Nov); US ADP Employment Change (Nov), Non-Farm Productivity (Q3), Labour Costs (Q3) and Crude Oil Inventories (Nov 27); FOMC Member Lockhart Speaks; Fed Chair Yellen Speaks; Fed Beige Book Release
Activity in the Euro zone manufacturing sector remained solid in November, albeit the pace of growth was modest, Markit Economics reported. The final manufacturing PMI for the Euro area came in at 52.8, in line with the preliminary reading and marking a 19-month high. An index measuring output, considered as a good guide to growth, increased to an 18-month high of 54.0, compared with the flash 53.9 and firmly above October's 53.6. While a sub-index measuring export orders rose to a six-month high, the output price index remained below 50 for a third month in a row. The measure came in at 49.3, above October's 48.6 but below the flash reading of 49.5. November's final PMI for Germany's manufacturing sector climbed to 52.9, up from October's final reading of 52.1 points. At the same time, the French manufacturing PMI came in slightly worse than the preliminary reading at 50.6.
The British factory activity declined beyond expectations in November, however, still demonstrating solid growth after having reached a 16-month high in the prior month. More precisely, the Markit/CIPS PMI measure of business activity in the UK manufacturing dropped to 52.7 in November from October's 55.2. The figure came against analysts' projections of 53.6. Nevertheless, the manufacturing sector remained above average in 2015 expanding for 32 successive months.
US manufacturing activity dropped in November for the first time in three years, as the sector has been faltering due to a strong US Dollar and deep spending cuts by energy firms. However, strong automobile sales indicated the US economy remained on a firm footing. The Institute for Supply Management reported that its factory index declined to 48.6 last month, the lowest reading since June 2009, down from 50.1 in October. While a reading below the key 50-mark threshold signals contraction in manufacturing activity, the gauge remained above 43.1, which is associated with a recession. Manufacturers have been struggling with US Dollar strength, weaker China's and Europe's growth and lower oil prices. The ISM's gauge of new orders dropped 4 percentage points to 48.9 last month. Still, weakness in the sector, which accounts for only 12% of the economy, is unlikely to argue the Fed out of the decision to hike interest rates at its meeting on December 16.
Upcoming fundamentals: EZ inflation to rise as energy price risks wane
The data on consumer price index and producer price index for the Euro area is due at 10:00 GMT on Wednesday. Inflation is estimated to pick up from 0.1% to 0.2% on a headline basis, mainly owing to decreasing effect from energy price slump earlier last year. Core CPI, however, has probably ticked down to 1% in November, down from 1.1% in the preceding month. Producer prices are forecasted to see a continuous slump of more than 3% on an annual basis. Meanwhile, the first insight into US jobs data will be available today in time the ADP employment report is released at 13:15 GMT. According to this reading, the world's largest economy created 190,000 jobs in November, up from 182,000 in October. Also, markets are going to watch productivity and labour cost numbers at 13:30 GMT. Productivity growth is estimated to raise the pace in the third quarter of 2015, up from 1.6% to 2.2% on a quarterly basis.
EUR/USD ready to return back below weekly PP
Yesterday the EUR/USD cross rallied by 67 pips during the trading session, which ended strongly in favour of the bulls. Temporary support for the Euro was coming from the disappointing US statistics. We expect the market to refocus back to the ECB meeting. A slump below 1.0615 (weekly PP) is quite likely on Wednesday. Mid-term bearish targets remain unchanged, represented by the cluster of supports at 1.0552/19. Meantime, any advance past the weekly R1 (1.0665) will meet a strong resistance in face of monthly PP, 20-day SMA and weekly R2 at 1.0711/39.Daily chart
200-hour SMA is managing to contain losses of the US currency for the moment. EUR/USD has already failed to consolidate above the moving average for three times in the past three weeks. This fact raises chances that the currency pair will fail here again. Fundamental expectations are sharing overall bearish views, as the ECB's vital meeting is looming.
Hourly chart
Bears put more pressure on EUR/USD, as their share picks up to 55%
Expectations among traders of OANDA and SAXO Bank have also worsened significantly in the past 24 hours, confirming deteriorating expectations towards the common European currency. OANDA clients are now short on EUR/USD in the majority (52%) of cases, while SAXO Bank's bearish portion deepened down to 60%.
Spreads (avg,pip) / Trading volume / Volatility
72% of Dukascopy Community members forecast the Euro to drop versus the US Dollar this week
No change in the Dukascopy Community members' sentiment has been observed, with less than 30% of votes being bullish. "The EUR/USD pair is in for a volatile week with several fundamental drivers. The ECB will be announcing their monetary policy plans and Draghi has been vocal about introducing further stimulus. The downside may be limited somewhat, as the market has been pricing this in for several weeks already," said Jignesh.
According to one more Community member, babanu, "the Euro looks very heavy. Taking into account this week's meeting, when the ECB President Mario Draghi will probably announce more stimulus to bring inflation to a more sustainable 2% level."