EUR/USD: another session with no visible leader

Source: Dukascopy Bank SA
  • The share of long positions bounced back from 46% to 45%
  • Markets are now more skeptical on EUR/USD, as pending commands are back into bearish territory
  • Within the bearish pattern EUR/USD risks tumbling to 1.0650 in the medium-term
  • Updated weekly technical indicators continue expecting losses for the Euro next week
  • Economic events to watch in the next 24 hours: Spanish CPI (Dec); Italian CPI (Dec); Euro zone Trade Balance (Nov); ECOFIN Meeting; US Retail Sales (Dec); PPI (Dec), NY Empire State Manufacturing Index (Jan), Industrial Production (Dec), Business Inventories (Nov) and Reuters/Michigan Manufacturing Index (Jan); FOMC Member Dudley Speaks

© Dukascopy Bank SA
One of the most important data releases took place in Britain on Thursday, where the Bank of England made several monetary policy decisions. Despite announcing risks for economy that are coming from weaker China and sluggish Euro zone, the MPC member Ian McCafferty dissented to vote in favour of hiking interest rates by 25 basis points. He noted that UK inflation risks continue to build up. However, the EUR/GBP cross was only down by 0.14% yesterday. The main positive performer was Australian Dollar, which surged by 0.5% against the Euro, being that Australia lost fewer jobs in December than it had been anticipated, while unemployment rate stood unchanged at 5.8%. As for the most traded FX cross, EUR/USD changed down by only 11 basis points on Thursday, following quite dovish comments from the St. Louis Fed President James Bullard who is usually considered to be one of the hawkish members of the FOMC committee.

The German economy, the Euro zone's pride, which is the only one in the currency bloc that has registered consistent growth since the financial crisis, grew by 1.7% last year, as robust domestic consumption and booming exports to the US helped to offset headwinds from Greece and other export markets. In 2014, the Euro zone's number one economy expanded 1.6%. Germany is benefitting from unprecedented stimulus by the European Central Bank. With the jobless rate at a record low, wages climbing and oil more than 37% cheaper compared to last year, domestic spending has become the key catalyst of economic growth. Private consumption increased 1.9% in 2015 from 0.9% last year, the most since 2000. Domestic demand contributed 1.5 percentage point to GDP. Exports surged 5.4%, while imports soared 5.7%. The Bundesbank predicts the nation's economy to grow 1.8% this year and 1.7% in 2017. Some analysts predicted that the German economy would benefit from the influx of 800,000 refugees into the economy, as private demand is likely to jump. Moreover, the ECB expanded its QE programme in December to at least 1.5 trillion euros and cut one of its key interest rates further below zero, providing additional support to the Euro zone economy.

The Bank of England remained split eight-to-one on interest rate decision in January. Yet, the central bank maintained its key interest rate on hold, as falling stock markets spark concerns that the world economy could be experiencing a bumpy ride in the near term, while lower oil prices and sluggish wage growth continue to weigh on inflation. The BoE kept the benchmark rate unchanged at the record low of 0.5%, while Ian McCafferty remained the only dissenter, voting for an immediate hike of 0.25 basis points. In the minutes of the January meeting, the Monetary Policy Committee said the expected recovery in inflation would be "a little more modest than previously assumed," while business surveys signal a slower pace of growth. Policy makers revised downwards their estimates for expansion last quarter and this quarter to 0.5%. The central bank have maintained borrowing costs on hold for almost seven years and is showing little inclination to start normalizing its monetary policy any time soon. The world's leading banks including Goldman Sachs Group Inc., Bank of America-Merrill Lynch and JPMorgan Chase & Co. have pushed back their expectations for the timing of the first rate hike to the final quarter of the year, while investors doubt the BoE will raise rates until the middle of 2017.

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Upcoming fundamentals: EZ trade balance and Italy/Spain CPI are due on Friday



The US trading session is estimated to be much more active and turbulent than the European one on Friday. However, some data from the Euro zone will still be watched closely, especially inflation statistics from Italy and Spain. The third largest national economy in the Euro zone will probably see a 0.1% annual increase in the consumer price index in December, no change from November. At the same time, Spanish inflation is set to surge from -0.3% to zero in December on a yearly basis, but markets foresee a slump of 0.3% on a month-to-month basis after a 0.4% gain in November. The data for Spain and Italy will be released at 8:00 and 9:00 GMT, respectively. Meantime, the Euro area's trade data will be out at 10:00 GMT, as analysts project a noticeable widening of the surplus to 21.1 billion euros in November, up from 19.9 billion euros in October 2015.


EUR/USD: another session with no visible leader

Neither the bulls nor bears have again gained any leadership in terms of driving the EUR/USD currency pair. It traded in a wide range between 1.0945 and 1.0830 yesterday, but nobody managed to close the session any near both of these levels. The pair keeps hovering slightly above 1.0860 today, while positive US fundamentals later in the day should expose 1.08 (55-day SMA; monthly PP), which used to be a reliable support earlier this week. A negative surprise, however, could result in a climb above the two-month trend-line at 1.09.

Daily chart
© Dukascopy Bank SA

EUR/USD has briefly overcome an upper bearish trend-line in the one-hour chart, but all gains were quickly reversed back to the South. Still, a support is offered by 200-hour SMA at 1.0844, followed by the aforementioned cluster of technical levels at about 1.08. They are likely to be strong enough, in order to keep the pair uplifted in the nearest future.

Hourly chart
© Dukascopy Bank SA

Gains were reversed back, as both sentiment and orders diminished

Following an increase to 46% for the share of SWFX long positions, the gauge bounced back to 45% by Friday morning and stepped back from the highest level in 17 days. Pending orders have followed the core distribution between open positions, as they tumbled across the board yesterday. Commands to sell the Euro against the Buck in 50-pip range were pushed as high as 61%, while "sell" orders in 100-pip range from the spot (1.0884) reclaimed a moderate majority of 54%.

Just opposite to Wednesday, the SWFX market participants decided to sell more euros against the US Dollar yesterday, while OANDA and SAXO Bank traders wanted to go long on EUR/USD. The former's bearish market participants continue holding the vast majority of all trades at the moment, namely 57.77% of them (59% yesterday), while SAXO Bank clients are short on the common European currency in 64.44% of all cases this morning (65% on Thursday).










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

© Dukascopy Bank SA

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."

Average forecast says EUR/USD will trade at 1.08 by April

Meanwhile, traders, who were asked regarding their longer-term views on EUR/USD between Dec 15 and Jan 15 expect, on average, to see the currency pair around 1.08 by the end of April. Though the majority of participants, namely 55% (+1%) of them, believe the exchange rate will be generally below this round level in ninety days, with 30% alone seeing it below 1.04. Alongside, 26% (+2%) of those surveyed reckon the price will trade in the range between 1.08 and 1.14 on April 30.

© Dukascopy Bank SA

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