- SWFX sentiment remains Euro-negative (55%)
- Pending orders are back in red, following EUR/USD's decline on Thursday
- US retail sales are in focus today; key support and resistance are 1.09 and 1.1030, respectively
- Daily technicals now see the Euro developing upwards; weekly indicators preserve a negative view
- Economic events to watch in the next 24 hours: German CPI and Wholesale Price Index (Nov); French Current Account (Oct); Italian Industrial Output (Oct); ECB Targeted LTRO; US Retail Sales (Nov), PPI (Nov), Business Inventories (Oct) and Reuters/Michigan Consumer Sentiment Index (Nov)
The number of Americans applying for unemployment benefits unexpectedly increased to the highest level in five months last week. Yet, the sharp jump did not mean deterioration in the labour market, as the underlying trend remained consistent with tightening conditions. Initial claims for jobless benefits surged 13,000 to a seasonally adjusted 282,000 for the week ended December 5, the highest level since early July, according to the Labor Department. The four-week moving average, considered a better gauge of labour market trends as it irons out week-to-week volatility, climbed by 1,500 to 270,750 last week. Claims have been below the 300,000 threshold, which is associated with strengthening labour market, for 40 consecutive months. This is the longest such streak since the early 1970s. As the labour market approaches full employment, little room remains for further decreases. Meanwhile, a separate report showed the US imported less deflation than expected in November, as import prices declined only half as much as analysts estimated. Prices of products shipped into the country dropped 0.4% in the reported month, compared with the 0.8% decrease predicted by analysts. In annual terms, import costs were 9.4% lower last month than a year ago.
The Swiss National Bank maintained interest rates at record lows and keep its pledge to intervene if needed to push back against on a strong Franc. The central bank kept its target range for three-month Libor at between -1.25% and -0.25% in line with expectations, but it said it would remain active in the currency market if necessary. The interest rate on sight deposits with the SNB remained unchanged at –0.75%. Announcing its decision, the central bank said its measures continue to help weaken the Swiss Franc. The SNB highlighted the importance of continue keeping the nation's currency shielded from excessive appreciation, as it harms the Swiss economy. Since dropping its 1.20-per Euro cap in January, the SNB has adopted a twin strategy of negative rates and interventions to keep the Franc in check. The currency is still about 10% higher this year, growth stalled in the third quarter, and manufacturers and retailers have reported falling demand. The central bank predicts an economic growth of just below 1% in 2015, with GDP rising 1.5% next year. In its analysis, the SNB said the global backdrop deteriorated, but it remained "cautiously optimistic". Inflation in the Alpine country is expected to decline 0.5% next year, before climbing 2017.
Upcoming fundamentals: ECB to continue decreasing bank LTRO lending
After the European Central Bank's QE programme was launched in the beginning of this year, the level of importance of the regulator's Targeted Long-Term Refinancing Operations tool has been declining over time. According to the previous report, the ECB lent only 15.5 billion euros to banks in the Euro zone, down from 73.8 billion euros in June and 97.8 billion euros in March. This time the mean expectation stays at just 7.5 billion euros, as the value is determined by total demand from commercial banks. The ECB lends these funds and charges a 0.05% annual interest, which is the main refinancing rate at the moment. Additional bank liquidity is focused on decreasing the long term interest rates and stimulating Euro area's economic growth.
EUR/USD comes under 55-day SMA to expose 1.09
EUR/USD traded down on Thursday, after the 200-day SMA managed to create a formidable resistance for bullish traders at 1.1031. Yesterday's session resulted in a decline below 55-day SMA, currently at 1.0972. Now we are having a closer look at the 1.09 mark, which is guarded by monthly R1 and 38.2% Fibonacci retracement of an Oct-Nov downtrend. Positive US data later on Friday should result in the testing of this demand. On the other hand, US disappointment rules nothing out, including a spike at least above the 55-day SMA.Daily chart
Spread between the spot price and 200-hour SMA is decreasing rapidly in the one-hour chart. With all attention paid to the US retail statistics later in the day, we can observe this spread being pushed down further on Friday. However, the moving average itself is going to support the bulls in the medium term.
Hourly chart
Bullish SWFX share picks up to 45%, while pending orders are under bearish pressure
As for the sentiment among other market participants, OANDA traders curbed their negative expectations toward EUR/USD from around 61% to less than 58% in the past 24 hours. SAXO Bank clients are short on the single European currency in 67.50% of all deals, down from about 69% yesterday morning.
Spreads (avg,pip) / Trading volume / Volatility
Two thirds of Dukascopy Community members forecast the Euro to depreciate versus the US Dollar this week
During the December 7-11 week the Dukascopy Community members again assume this currency pair is going to decline, as more than 66% of all votes are bearish.
Concerning traders' opinions: "Last week's ECB meeting disappointed the market with less than expected stimulus, and the result it was a rally for the Euro. Nevertheless, the fact remains that the Fed is expected to hike next week, which sets up USD bulls with attractive levels to short the pair this week," claims Jignesh.