- Sentiment among SWFX traders worsened, as bearish portion went up to 55%
- Pending orders improved substantially and are now marginally Euro-bearish
- An expansion beyond 55-day SMA (1.0933) will pave the way for a rise to 200-day SMA at 1.1041
- Daily indicators preserve the bullish aggregate outlook on EUR/USD
- Economic events to watch in the next 24 hours: Italian Trade balance (Nov); US Final GDP (Q3), Personal Consumption Expenditures (Q3), Existing Home Sales (Nov) and Richmond Fed Manufacturing Index (Dec)
European Central Bank member and Bundesbank President Jens Weidmann predicted the economic recovery in the Euro zone to pick up marginally next year, but not by enough to lower unemployment. Weidmann added that Euro zone member states should further consolidate their budgets given their high debt levels. Meanwhile, ECB Executive Board Member Peter Praet said the economic outlook in the 19-nation bloc has improved in the years after the financial downturn, thanks to precipitous decline in oil prices, low interest rates and structural reforms implemented in a number of countries. Praet added that fiscal policies will be slightly expansionary, thereby contributing 0.1% to GDP growth in the Euro area in 2016 and 2017. Nevertheless, the region's main challenge will be to ensure prosperity and security. Praet emphasized the fact that real GDP in the Euro zone in the beginning of 2016 will barely return to its level of early 2008, meaning that over the last eight years the currency bloc's GDP has not grown in real terms on average. He also said that the financial sector is on a firmer footing as it was recapitalized and banking supervision was launched. Yet, pockets of fragility still exist. Meanwhile, German factory gate prices remained negative amid continuously falling oil prices. The producer price index dropped 0.2% on month in November, translated into an annual 2.5% decline.
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.
Upcoming fundamentals: US economic growth is set to be revised downwards
Tuesday will be much more active in terms of statistical news throughout the trading session, especially during the US trading. At 13:30 GMT we are expecting to see the final reading for US third-quarter GDP. Analysts foresee the indicator to be revised down from 2.1% to 1.9%, mostly due to lower personal consumption expenditures, which are likely to be downgraded from 3.0% to 2.9%. Credit Suisse bank says that "Since Q3 GDP's first revision, we have seen further downward revisions to manufacturing and wholesale inventories. The latest data on Q3 durable goods shipments also are looking weaker. And newly-released "hard data" on service spending suggest a downward revision to personal consumption on health care last quarter" (based on Business Insider). Meantime, US existing home sales are set to decrease to 5.32 million on a yearly basis in November, down from 5.36 million in the preceding month. Any negative surprise is capable of putting negative pressure on the Dollar today.
EUR/USD is inching higher towards 55-day SMA
EUR/USD performed in a confident up-trend on Monday, although the day brought very few fundamental drivers. The pair closed above the weekly pivot point and approached the 55-day SMA at 1.0933. However, this level remains untouched for the time being. According to the daily technical indicators, the Euro should continue growing in the next 24 hours. An increase above the 55-day SMA will expose the 1.1041 mark, namely the 200-day SMA. On the other hand, inability to develop strongly beyond 1.09 may result in a correction and a sell-off back in the direction of 1.08.Daily chart
In the one-hour chart the currency pair is capped by the 200-hour SMA. At the same time, the risks are skewed to the upside, as EUR/USD has successfully tested the downward trend-line, which connects the Dec 15 and Dec 16 highs. The gains above 1.0924 will put at risk the Dec 16 high at 1.1012.
Hourly chart
Bearish sentiment dominates in the SWFX market
Meantime, traders have become more bearish on the single currency in both OANDA and SAXO Bank markets. The percentage of OANDA bearish positions rose to 59.5% by Tuesday morning, while SAXO Bank clients are short on the observed currency pair in almost 67% of all cases (64% yesterday).