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