- SWFX open positions are mostly unchanged after light Monday trading (55% bearish vs 45% bullish)
- Pair's future movement is uncertain, as pending orders are still hovering around neutrality on Wednesday
- Within the bearish pattern EUR/USD risks tumbling to 1.0650 in the medium-term
- Losses are also projected by technical indicators on all time frames
- Economic events to watch in the next 24 hours: French CPI (Dec); ECB Non-Monetary Policy Meeting; Euro zone Industrial Production (Nov); FOMC Members Rosengren and Evans Speak; Fed Beige Book Release; US Monthly Budget Statement (Dec)
The European Central Bank has tools and capacity to act further if needed, as inflation remains stubbornly below target, Governing Council member Francois Villeroy De Galhau said. In light of sluggish economic growth and persistently falling oil prices, ECB President Mario Draghi extended the central bank's programme of asset purchases through March 2017 and lowered deposit rate to minus 0.3%. Yet, investors were disappointed with the scale of the stimulus package, and sent the common currency surging. The Euro zone consumer inflation was 0.2% higher in December compared with a year ago, remaining well below policy makers' 2% target. Villeroy said that ECB stimulus will add about a half a percentage point to inflation this year and almost the same to growth. The ECB currently estimates consumer prices will climb 1% in 2016 after virtually stagnation in 2015. Meanwhile, Josef Bonnici, the Governor of the Central Bank of Malta, said the ECB must continuously assess the effect of the bond-buying programme, adding that while the declining oil prices lifted buying power of Euro zone households, it hurt price growth. The ECB's Governing Council gathers in Frankfurt next week for its first policy-making meeting this year. President Mario Draghi will hold a press conference to voice the council's thinking on January 21.
UK manufacturing and industrial production both dropped unexpectedly in November, according to the Office for National Statistics. Industrial production declined 0.7% in the reported month from October, dragged down by a fall in manufacturing and a drop in North Sea gas extraction, marking the biggest monthly decline since early 2013. At the same time, manufacturing output slid 0.4% against economists' expectations for a 0.1% increase. Measured on an annual basis, manufacturing production shrank 1.2%, marking its fifth straight month of contraction. Economists, however, had predicted a 0.8% slide. Nevertheless, manufacturing production continued to grow on a quarterly basis, climbing 0.5% in the three months to November, the biggest increase since October 2014, and compared with the 0.3% growth in the quarter to October. Still, factory production remained 6.1% below the pre-crisis level peak seen in the first quarter of 2008. The decrease signalled that the British economy slowed toward the end of 2015 and remains largely reliant on consumer spending and the services sector for growth. The recent data suggest that the UK manufacturing industry will make only a marginal positive contribution to broader economic growth in the fourth quarter of 2015.
Upcoming fundamentals: French consumer prices to recover in December
Inflation in France, the second largest economy in the Euro zone, is expected to grow by 0.1% in December 2015, while recovering from a drop of 0.2% in November. This will be the first data release on Wednesday at 7:45 GMT. Alongside, industrial production for the Euro area is due at 10:00 GMT. November manufacturing output is set for a fall of 0.2% on a monthly basis, following a gain of 0.6% in the preceding month. American session will be more active today, with US budget deficit data and several FOMC members' speeches being among the most awaited events of the day.
EUR/USD approaches support cluster at 1.08
Yesterday neither bulls nor bears managed to gain control over the EUR/USD cross, meaning the exchange rate ended American session with almost no change in daily value. Despite that, bearish sentiment seems to be prevailing in the market right now, as the pair is moving inside the channel down pattern. The closest support is offered by 55-day SMA and monthly PP at 1.0812/28, with another demand being placed at 1.0774/46 (weekly S1; Bollinger). Successful testing of both areas is required in order to refocus market attention to much lower levels around 1.0650 (trend-line).Daily chart
While the pair is testing 200-hour SMA at 1.0842, some additional difficulties are represented by July low of the previous year at 1.0808. Bearish intentions of the Euro are quite clear, but the fully negative scenario will only be awaited after EUR/USD goes through a tough support at 1.08.
Hourly chart
Most of SWFX market players are still betting on Dollar's climb
However, both OANDA and SAXO Bank clients decided to have more positive attitude with respect to the most traded FX cross. Difference between long and short positions tightened in the past 24 hours, as in both markets the portion of bears is now accounting for 55.8% and 62%, respectively. This suggests equal declines of around three percentage points in terms of the bearish market share.
Spreads (avg,pip) / Trading volume / Volatility
55% of Dukascopy Community members see the Euro recovering versus the US Dollar by the end of this week
Last week the majority (56%) of Dukascopy traders expected the most traded FX cross to depreciate, even though by the end of the week the cross managed to gain value. This time around 55% of Community members see the common currency higher on Friday of this working week.
Concerning traders' opinions on the matter, rokasltu assumes that "EUR/USD pair presently holds sub 1.10 area. I suppose, the Euro's advance is limited, thus lower correction is expected." From another side of the coin, STARLINE thinks that "during the next period (week) we could observe a rebound in EUR prices against USD."