- Sentiment among SWFX market participants is stable (46% bullish vs 54% bearish)
- 68% of all 100-pip pending orders are set to sell the Euro vs Greenback
- July low (1.0808) is holding ground, as bulls are acting to send EUR/USD above 55-day SMA
- Technicals are strongly Euro-bullish on daily basis; five out of eight indicators are a "buy"
- Economic events to watch in the next 24 hours: Bundesbank Monthly Report; Euro zone Consumer Confidence (Dec); US 3/6-Month Treasury Bill Auction and Chicago Fed National Activity Index (Nov)
The Bank of Japan surprised market participants by announcing its intentions to increase purchases of exchange-traded funds and prolonging the maturity of bonds it buys to boost investment in the economy. Under the new programme, the central bank will purchase ETFs at an annual pace of 300 billion yen composed of stocks issued by companies "proactively" investing in physical and human capital. The new ETF purchase programme will start in April and will build up the current ETF purchase programme of around 3 trillion yen annually. The central bank said after its December monetary policy meeting it would initially target ETFs that track the JPX-Nikkei 400 index, which features companies that promote transparency and good governance. The BoJ's new ETF program is aimed in part at offsetting the possible market impact of the central bank's sales of stock it has bought from financial institutions since 2002, according to the BoJ statement. It plans to take 10 years to sell those shares at a pace of around 300 billion yen annually. The BoJ also decided to extend the duration of the Japanese government bonds it buys from 10 to 12 years from 2016. Meanwhile, the central bank held rates steady and said it will stick to its plan to increase the monetary base by 80 trillion annually, as expected.
The number of Americans filing for unemployment benefits fell last week, a sign of the labour market's health. Initial jobless claims declined by 11,000 to a seasonally adjusted 271,000 in the week ended December 12, the Labor Department reported. Economists, however, had expected 275,000 new claims last week. Claims data is often volatile during the period between the Thanksgiving and New Year's holidays. The four-week moving average of claims, which irons out weekly ups and downs, dropped by 250 to 270,500 last week. Claims had fallen steadily since 2009 until this year, when they hit the lowest level in four decades in mid-July. In November, employers created a seasonally adjusted 211,000 jobs and added a robust 298,000 in October, suggesting the job market gained traction this fall. Earlier in the week, the Fed signalled its growing confidence in the world's number one economy and announced its first rate hike in almost a decade. The Fed raised its target for the federal funds rate, the rate at which banks lend money to one another, from 0% to 0.25%. By the end of next year, the US central bank expects the benchmark interest rate to climb to a median 1.375%, which implies four more 25 basis points increases over the coming 12 months. In 2017, officials are aiming to bring the policy rate up to 2.375%, which will take another four hikes.
Upcoming fundamentals: Euro area's consumers remain cautious on spending
There will be few EU fundamentals published in the next 24 hours, with most of them carrying little potential volatility for the FX market. Consumer confidence index for the Euro zone will be out at 15:00 GMT, and economists forecast the leading indicator for consumer spending to be pessimistic at -6 points in December, no change from November. Meantime, the German Bundesbank will release the monthly report, which provides insight into future economic projections of the Euro area's largest national central bank.
EUR/USD: bears are contained by 1.08
The closest support represented by this year's July low at 1.0808 managed to cap a sell-off for the second consecutive day on Friday. It provided the bulls with some fresh upward momentum that pushed EUR/USD in the direction of the 38.2% Fibonacci retracement of an Oct-Nov downtrend at 1.0893. This level is guarding the monthly R1 and weekly PP around 1.09. A success here will require an additional surge above 55-day SMA (1.0939) to expose both 200/100-day SMAs around 1.1050. Meantime, daily indicators are now strongly bullish on EUR/USD.Daily chart
According to the one-hour chart, the EUR/USD currency pair seems capable of growing as high as 1.0920 in the next 24 hours. There the bulls are going to meet both the 200-hour SMA and a downtrend line, which connects Dec 15 and Dec 16 highs. The bearish pressure is therefore expected to persist in the near term.
Hourly chart
Open positions are flat for a third day, as pending orders rebounded marginally
Meanwhile, OANDA and SAXO Bank sentiment numbers are hovering around the distribution we observed on Friday. OANDA market projections moved somewhat in favour of the bulls, but they are still in the deep minority of 41.86%. On the contrary to that, SAXO Bank traders became slightly more bearish with respect to EUR/USD, as the shorts pushed their market portion up to 64%.