- Bullish share of the SWFX market increased up to 46%
- "Sell" orders are prevailing over those to acquire the Euro in 50 and 100-pip ranges from the spot
- ECB meeting in focus, expected to activate market volatility today
- Daily studies are neutral with respect to EUR/USD
- Economic events to watch in the next 24 hours: World Economic Forum in Davos (Day 2); ECB Interest Rate Decision, Monetary Policy Statement and Press Conference; Euro zone Consumer Confidence (Jan); US Unemployment Claims (Jan 15) and Philadelphia Fed Manufacturing Index (Jan)
Germany's producer prices dropped more than expected in December amid a steep decline in energy prices. According to the Federal Statistical Office, producer prices, a proxy for the closely watched consumer prices, fell 0.5% on the month and were down 2.3% compared with December a year ago. Energy prices were the main drag, as they fell 1.4% in December from the preceding month, but plunged 6.8% from December 2014. Excluding volatile energy prices, producer prices slid 0.1% on the month and slipped 0.6% from a year earlier. For 2015 as a whole, producer prices registered their sharpest annual fall since 2009, when the Euro zone's largest economy was in recession. Producer prices declined 1.8% on average last year from 2014. German consumer prices also fell in December, when they declined 0.1% from November. Measured on an annual basis, the consumer price index climbed 0.3% in the reported month compared with the same period a year ago. Data published earlier this week showed investor confidence in Germany declined in January for the first time in three months amid a turbulent start to the year for global equity markets triggered by concerns about China's economic outlook. The ZEW Center for European Economic Research reported that its index of investor and analyst expectations dropped to 10.2 in January, down from December's 16.1.
The UK unemployment rate unexpectedly declined to the lowest level in almost a decade, while wage growth slowed less than predicted as the labour market continued to improve. Wages excluding bonuses climbed 1.9% in the quarter to November from a year earlier, down from 2% in the three months through October, the Office for National Statistics reported. Meanwhile, total pay growth, including bonuses, slowed to 2% in the three months through November from 2.4% in the previous period. There were 267,000 more people with jobs in those three months, when compared to the previous quarter, and 588,000 more than a year ago. As a result, the employment rate rose to 74.0%, the highest level since records began in 1971. The jobless rate dropped to 5.1%, the lowest since the three months through January 2006. The earnings data came in line with Bank of England Governor Mark Carney comments, when he referred to weaker wage growth as one of the main factors in deciding to refrain from immediate interest rate hike. In addition, Carney cited ongoing decline in oil prices and volatility in China. Thus, the central bank is likely to remain in a wait-and-see mode for some time to come, while investors shift their bets for rate hike into 2017.
Upcoming fundamentals: China to be dominant theme for ECB meeting
Governing Council of the European Central Bank is meeting today in Frankfurt for a scheduled monetary policy meeting. Following decisions to extend the QE beyond September 2016 and curb the deposit rate by 10 basis points down -0.30%, market analysts see no changes taking place today. At the same time, recent instability in global stock markets, oil price rout and Chinese slowdown will play a key role during today's discussion among Euro zone's top central bankers. The odds seem to be against Mario Draghi who is trying to raise inflation expectations at least somewhere in the direction of the ECB goal of just under 2% over the medium-term.
EUR/USD faces formidable resistance under 1.10
Daily outlook for the most traded FX cross is sidelined for the moment. We see the most important resistance area between 1.0980 (100-day SMA, Dec-Jan downtrend) and 1.1050 (200-day SMA). While the pair keeps trading below this area, the mid-term forecast will tend to have an overall bearish bias. Key target for the bears is 1.08, which consists of several heavy support lines including 55-day SMA, monthly pivot point and Dec-Jan uptrend. A failure below there could trigger some purchasing activity, but inside the current triangle pattern expectations are still neutral.Daily chart
In the one-hour chart the pair is estimated to recover from a six-day uptrend, which holds strong near 1.0870. Additional demand is offered by 200-hour SMA. The first supply to meet will be Dec 15-20 downtrend at 1.0970, followed by a much longer-term resistance line at 1.0980 (connects Dec 4 and Jan 20 highs).
Hourly chart
EUR/USD's sentiment largely unchanged since Wednesday
Meanwhile, bearish market share at OANDA dropped by more than five percentage points over the last 24 hours of trading, down from 58.5% to just 53.18% by Thursday morning. Traditionally, SAXO Bank market participants are more pessimistic with respect to the observed cross, as their bearish traders are enjoying a majority of 65% on January 21 (67% on January 20).
Spreads (avg,pip) / Trading volume / Volatility
69% of Dukascopy Community members are now estimating gains for the Euro vs US Dollar
Following neutral development of the pair during the January 11-15 week, participants of our weekly Community Forecasts quiz decided to become much more bullish on the pair. Norry states that "the New Year has started with a rise of EUR/USD, with commodities prices reaching deep lows. Some of US data that usually moves the market has had no great impact on this pair. Technically, the pair is moving north."
Meanwhile, PisakJanos claims that "everybody is setting eyes on Thursday, waiting for the rate decision of the ECB and its monetary policy statement. As for now, I have not heard any rumors about rate changes, but the policy statement will induce large movements for sure, as it did on the 3rd of December 2015."