- Marginally more SWFX traders are positive on EUR/USD than yesterday (46% vs 45%)
- More than 71% of all 100-pip pending orders are set to sell the Euro
- Tranquil trading expected after the most important event of the year
- Short-term technical indicators are keeping the Euro-bullish bias ahead of FOMC
- Economic events to watch in the next 24 hours: German IFO Business Climate (Dec); Italian Trade Balance (Oct); US Current Account (Q3), Unemployment Claims (Dec 11), Natural Gas Reserves (Dec 11) and Philadelphia Fed Manufacturing Index (Dec)
Manufacturers in the Euro zone are enjoying a solid end to 2015, with a corresponding measure advancing in December to the highest level in almost two years. Markit's manufacturing PMI rose to 53.1 points in the current months, compared with 52.8 in November. At the same time, the flash reading of services PMI declined to 53.9 in December from 54.2 in November, underperforming expectations. As a result, Markit's composite PMI gauge, which measures business activity in both manufacturing and services sector, increased to 54.0, below the expected rise to 54.2. Markit said the data showed the Euro zone economy still enjoyed its strongest quarter for four and a half years. The four biggest Euro zone economies saw their PMI gauges remain above the key 50.0 mark in November and December. Business activity in German factory industry increased, with PMI reading climbing to 53.0 up from November's 52.9. The French preliminary manufacturing PMI rose to 51.6 in the current month, better than analysts had expected and above the final reading of 50.6 in November. The PMI for Italy's manufacturing sector edged higher to 54.9 points in November, staying in the growth zone above 50.0 points for the tenth consecutive month.
Japan's exports declined in November at the fastest pace in almost three years, as shipments to Asia fell in a worrying sign that sluggishness in overseas demand could derail economic growth. Japan's gross domestic product is likely to continue to increase as domestic demand remained strong, but falling exports underscores threats that China's downturn and turmoil in emerging markets poses to growth outlook. Exports decreased 3.3% in November from a year ago, marking the biggest drop since a 5.8% annual decline in December 2012. Japan-made products destined for China plummeted 8.1% year-on-year last month, while exports to the US climbed 2.0%. Imports came in also much weaker than expected, plunging 10.2% over the same period compared with economists' forecast of a 7.3% decline, marking the eleventh consecutive month that imports have dropped. As a result, Japan's trade balance came in a deficit of 379.7 billion yen. The Bank of Japan is expected to keep monetary policy steady on Friday following the Fed's first interest rate increase in almost a decade. Concerns about foreign demand could complicate the BoJ's task next year as it tries to get consumer inflation to pick up toward its 2% price target.
Upcoming fundamentals: German business confidence to continue improving
Since July of this year the IFO business climate index for Germany has surprised to the upside during all months. In November it rose to 109 points, while this month the index is estimated to come in at 109.2 points. The survey is based on responses from 7,000 German businesses, meaning it is able to objectively evaluate confidence among the country's entrepreneurs. Meantime, the Philadelphia Fed manufacturing index will be out at 13:30 GMT. It returned into positive territory in November, by picking up from -4.5 to 1.9 points on a monthly basis. Today a moderate improvement is forecasted by economists who see the index rising to 2.1 points in December. Any reading above zero indicates improving conditions of business among the Philadelphia district's 250 biggest producers.
EUR/USD depreciates after Fed hiked rates
EUR/USD registered a mild decline on Wednesday, just after the Fed announced a decision to raise the key interest rate. Thursday trading, however, proves to be much more active from the side of the Dollar's bulls. The pair is expected to test the weekly S1 and 20-day SMA at 1.0845, which is the first major support for today. Another demand is created by 1.0808, namely the July low. Success here should imply an additional sell-off down to the 1.0724 mark (monthly pivot point). Meantime, trading volume stays within historical norms, meaning market volatility is unlikely to be exceptionally high.Daily chart
The pair's outlook is bearish in the one-hour chart. Yesterday EUR/USD penetrated the bullish pattern's lower edge, which was strengthened by 200-hour SMA at 1.0930. Now both of them are crossed and we expect the sell-off to continue. The long-term bearish target is the Dec 3 low at 1.0521, but there are many intermediate demand levels that have to be breached as well.
Hourly chart
SWFX sentiment ticks up marginally; pending orders deteriorate
OANDA and SAXO Bank sentiment is swinging between gains and losses for the moment. The former's share of short traders increased above 60% after Fed events. On the other hand, SAXO Bank clients have continued to decrease their short positions' side, by pushing it down to 63%.
Spreads (avg,pip) / Trading volume / Volatility
Community members are divided in their opinions towards EUR/USD's movement this week
By Friday of this week, participants of the quiz suggest the most traded FX cross will hover somewhat above 1.08, down from last Friday's closing level of 1.10. Generally, market participants are widely undecided with respect to the pair's perspectives.
Concerning traders' opinions: "I believe the pair has reached its top for this month, namely 1.1050. The FED decision to raise interest rate is highly expected and this will certainly push the EUR/USD below 1.0830," says Nick Dundee. On the other hand, csan86 assumes that "the price broke through the last week's highs and tested the new levels. In my opinion, the trend is bullish, impulsive, and non-volatile in the long-term."