EUR/USD to become volatile during Fed week

Source: Dukascopy Bank SA
  • SWFX sentiment remains Euro-negative (55%)
  • Pending orders are spinning around 50% in both 50/100-pip ranges
  • Markets are uncertain before the Fed's vital decision; short term outlook is mixed
  • Daily studies are favouring an increase in the Euro's value on Monday
  • Economic events to watch in the next 24 hours: Italian CPI (Nov); Euro zone Industrial Production (Oct)

© Dukascopy Bank SA
The European currency benefited from heavy losses suffered by commodity-related currencies on Friday, which were caused by the steep oil price decline. EUR/AUD skyrocketed a mere 1.7% and EUR/CAD followed with a rally of 1.4%. Also, the Euro/Kiwi cross closed the session with a surge of more than one full percentage point. As for other currency pairs, EUR/USD and EUR/CHF increased by 0.4% and 0.1%, respectively. Alongside, the Euro was steady versus the Yen and Franc last Friday. European fundamentals used to be an additional factor, which helped the single currency to advance in value. Italian monthly jobless rate dipped to 11.7% in October, the lowest level since mid-2013. Moreover, the European Central Bank lent 18.3 billion euros to the Euro zone banks, and reading posted was well above the average economists' expectations. The Euro kept rising in its cross with the Greenback on Friday, despite positive US data on retail sales and producer prices.

German consumer inflation rose in November, but remained well below the European Central Bank target amid ongoing pressure from weak energy prices. Germany's CPI increased 0.4% in the reported month from a year earlier, up from October's 0.3% rise. At the same time, the Harmonized Index of Consumer Prices showed inflation in the Euro zone's powerhouse climbed an annualized 0.3%, up from the previous month's 0.2% gain. The main drag came from the decline of total energy prices, which plunged 8.6% in November. Germany's Bundesbank lowered its inflation outlook for the next two years. The central bank cut its projection for consumer prices in 2015 to 0.2% from 0.5% estimated in June and lowered its 2016 forecast to 1.1% from 1.8%. The German economy is expected to grow 1.7% this year, 1.8% next year and 1.7% in 2017. Meanwhile, industrial production in Italy rose for the second consecutive month in October. Industrial output increased 0.5% on a monthly basis in the reported month, up from a 0.2% gain in September and overshooting economists' forecast for a 0.3% growth. On an annual basis, industrial production surged 2.9%, following September's 1.8% rise.

Business confidence in Japan held steady and companies kept their bullish spending plans, offering some relief to policy makers, who remained concerned that global headwinds could derail a fragile economic recovery. The headline index for big manufacturers' sentiment was at plus 12 in December, unchanged from three months ago, according to the Bank of Japan's quarterly Tankan survey. Big companies plan to increase capital spending by 10.8% in the fiscal year that ends in March. The data suggests firms will finally direct some of their record profits to wages and capital expenditures, responding to premier Shinzo Abe's stimulus policies that are aimed at ending two decades of economic stagnation. The data also heightens the chance the central bank would refrain from expanding its unprecedented stimulus programme, when it meets later in the week. Japan narrowly escaped recession in the third quarter as capital expenditure rose more than initially estimated, but analysts predict any rebound in growth to be modest. Moreover, both big manufacturers and non-manufacturers anticipate business conditions to worsen in the coming three months, highlighting concerns that China's slowdown and the moderating pace of the Japanese Yen's drop could hurt exports.

Watch More: Dukascopy TV

Upcoming fundamentals: No-data Monday should result in light trading for EUR/USD



There are few fundamental indicators, which are due to be released on Monday of a new trading week. Italy's inflation data is first out at 9:00 GMT, with markets waiting for no surprise from the Euro area's third-biggest economy. On a monthly basis, consumer prices have probably continued to decline by 0.4% in November, while remaining marginally above zero on a yearly basis. Meantime, Euro zone's industrial output statistics will be out at 10:00. The consensus forecast is for a rise of 0.2% in October, following a decrease of 0.3% in the preceding month. However, all of this data is highly unlikely to cause uplifted volatility of the most traded FX cross today.


EUR/USD consolidates around 55-day SMA

As expected, EUR/USD surged past the 55-day moving average line to close the week just below the 1.10 mark. During Friday, the pair has been contained by 200-day SMA at 1.1032, which remains a very formidable resistance for the bulls. Monday-Tuesday development is likely to be cautious, as we are nearing the Fed rate decision on Wednesday. Our short term outlook is neutral for the next 24 hours, while the weekly PP at 1.0943 is acting as an important demand.

Daily chart
© Dukascopy Bank SA

EUR/USD is capable of declining under 1.09 in the nearest future, based on movements in the one-hour chart. After reaching this round level, the cross is going to meet the 200-hour SMA, currently at 1.0856. Another support is represented by the bullish channel's lower trend-line.

Hourly chart
© Dukascopy Bank SA

Bullish-bearish gap is unchanged at 10%; pending orders are around 50%

During the weekend the total percentage of bullish positions has remained broadly steady at 45%, providing a total gap of 10% with respect to the bears (55%). Alongside, pending orders in both narrow and wide ranges are swinging around the 50% mark. By Monday morning, 50-pip commands are bearish in 54% of all cases, while 100-pip orders are somewhat long on the Euro (52%).

In the meantime, SAXO Bank clients are keeping their strongly negative views toward the EUR/USD cross and their number of bears managed to stay flat around 67.50% in the past 72 hours. Additionally, six out of ten OANDA clients are short on the common European currency against the Greenback.













Spreads (avg,pip) / Trading volume / Volatility



Average forecast says EUR/USD will trade at 1.06 by March 2016

Meanwhile, traders, who were asked regarding their longer-term views on EUR/USD between Nov 14 and Dec 14 expect, on average, to see the currency pair around 1.06 by the end of next year's March. Majority of participants, namely 53% of them, believe the exchange rate will be generally below this level in ninety days, with 29% alone seeing it below 1.02. Alongside, 26% of those surveyed reckon the price will trade in the range between 1.06 and 1.12 by the end of March 2016.

© Dukascopy Bank SA

Actual Topics

Subscribe to "Fundamental Analysis" feed

Subscribe
To learn more about Dukascopy Bank CFD / Forex trading platform, SWFX and other trading related information,
please call us or make callback request.
For further information regarding potential cooperation,
please call us or make callback request.
To learn more about Dukascopy Bank Binary Options / Forex trading platform, SWFX and other trading related information,
please call us or make callback request.
To learn more about Dukascopy Bank CFD / Forex trading platform, SWFX and other trading related information,
please call us or make callback request.
To learn more about Crypto Trading / CFD / Forex trading platform, SWFX and other trading related information,
please call us or make callback request.
To learn more about Business Introducer and other trading related information,
please call us or make callback request.
For further information regarding potential cooperation,
please call us or make callback request.