- Bullish market share rose from 45% to 48% by the week's most important trading day
- Pending orders continue to be relatively neutral in both 50/100-pip ranges
- Goldman Sachs expects a dovish ECB surprise, sees EUR/USD dipping by 300 points
- Daily technical indicators are supporting the downward move on Thursday
- Economic events to watch in the next 24 hours: Italian, French, Spanish, German, Euro zone and US Services PMI (Nov); Euro zone Retail Sales (Oct); US Unemployment Claims (Nov 27), Factory Orders (Oct), Natural Gas Reserves (Nov 27) and ISM Non-Manufacturing PMI (Nov); FOMC Member Fischer Speaks; Fed Chair Yellen testifies; ECB Interest Rate Decision, Monetary Policy Statement and Press Conference
The Euro zone's annual inflation was unchanged in November, remaining far below the European Central Bank's target of just below 2%. According to Eurostat, the broadest measure of prices for goods and services was 0.1% higher last month compared with November 2014. Economists, however, had expected consumer prices to rise 0.2%. Lower than predicted inflation implies that the ECB is more likely to cut rates or deploy other stimulus measures that weaken the Euro. The annual rate of inflation has remained below 0.5% since mid-2014, and has not benefitted from a new stimulus programme initiated in March, under which more than 1 trillion euros of mostly government bonds will be bought through September 2016. Moreover, the data, which came just a day before the central bank's meeting, showed that the core rate of inflation, which excludes prices for items such as energy and food, slipped to 0.9% from 1.1% in October. The decline came as prices for services and manufactured goods climbed at a slower pace, indicating a weakening of inflationary pressures coming from within the currency area.
American companies created more jobs than expected in November, a further sign that the US labour market continued to strengthen. The number of Americans employed in the US private sector surged by 217,000, the biggest gain in five months and followed a 196,000 increase in the preceding month, according to the ADP Research Institute. Companies are adding employees and retaining those already employed as a tighter labour market makes it difficult for them to find skilled and experienced workers. Fed policy makers are closely watching progress toward full employment as they consider whether the world's largest economy is strong enough to weather an increase in the benchmark interest rate, a decision that may unfold in two weeks. The ADP report precedes a more comprehensive government November jobs report that is expected to show employment growth cooled to a more sustainable level after an October increase. Companies took on 200,000 workers in November following a 271,000 increase in the previous month that was the most this year, according to the median forecast of economists.
Upcoming fundamentals: A Christmas gift from Mario Draghi?
December 3, 2015 is considered to be one the most important days of the year. It is all about the European Central Bank today, and the markets are likely to focus solely on the Governing Council's decisions, rather than on other fundamentals throughout the day. At 12:45 GMT the ECB will announce its decision on key interest rates including the marginal lending facility rate, refinancing rate and deposit rate. Speculations are focusing on the deposit rate, which is negative -0.2% at the moment. Being that many bonds in the Euro zone are yielding less than -0.2%, the ECB is facing a choice of lowering the rate deeper into red, in order to be able to buy them under the QE programme. Expectations are divided, whether the ECB is going to cut this rate either to -0.3% or -0.4%. Alongside, the press conference will begin at 13:30 GMT where Mario Draghi is expected to reveal additional monetary stimulus. It will possibly include the expansion of monthly asset purchases above 60 billion euros, extension of the QE programme beyond September 2016 or even a decision to buy new types of securities, such as corporate bonds.
EUR/USD to target 1.04 in anticipation of ECB
On Wednesday EUR/USD created the long lower shadow candlestick, meaning the bears failed to preserve their advantage by day-end. Today, however, the state of affairs is estimated to change, as we have finally approached the ECB day. More than anticipated bearish surprise should push the Euro below both April and March lows at 1.0519/1.0461. By piercing through these levels, the cross will expose the monthly S1 around 1.04, which is guarded by the weekly S3. By looking at these supports, an extra drop towards 2003 low (1.0331) seems less likely.Daily chart
During Tuesday-Wednesday, EUR/USD has failed to violate the 200-hour SMA for three times. This fact confirms that the bulls are weak enough, in order to commence any confident recovery for the moment. From the one-hour chart's perspective, a drop towards 1.0480 is highly likely, in case the European Central Bank acts according to all market expectations today.
Hourly chart
Bulls regained some ground in the SWFX market
OANDA clients continue to be marginally bearish with respect to the common European currency, as the share of the longs stays at 48.38%. Alongside, 57.73% of SAXO Bank traders are keeping short open positions, down from around 60% yesterday morning.
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."