- Bullish share in the SWFX market increased up to 46%
- Orders to acquire the Euro in narrow 50-pip range from the spot accounted for 56% on Friday morning
- Soft ECB stance puts EUR/USD at bearish risk; positive EU fundamentals should create some optimism
- Technicals on a weekly basis expect the pair to depreciate
- Economic events to watch in the next 24 hours: World Economic Forum in Davos (Day 3); French, German and Euro zone Flash Manufacturing and Flash Services PMI (Jan); US Manufacturing PMI (Jan) and Existing Home Sales (Dec); ECB President Draghi Speaks
European Central Bank made a decision to hold all interest rates in the Euro zone unchanged at its meeting in Frankfurt on Thursday. Separately, the deposit rate remained at historical low of –30 basis points, while marginal lending facility and main refinance rate are also flat at 0.30% and 0.05%, respectively. No change followed a wide range of supportive decisions undertaken in December when the ECB lowered deposit rate to –0.3% from –0.2% and announced it is going to extend the QE programme through March 2017. At the same time, during the press conference President Mario Draghi announced that the regulator stands ready to act again as soon as early March when the Governing Council is going to have next monetary policy meeting. Such comments came out as a surprise for the markets, with the Euro dipping down around 100 pips versus US Dollar in a few minutes after Draghi's words. President expects the very accommodative monetary policy to remain in place for a long period of time, being that growth and inflation expectations are highly likely to be downgraded one more time in March when new ECB staff projections will become available. By acknowledging that bond-buying programme is successfully continuing, Mario Draghi added that he is ready to respond to equity and commodity market turmoil of the first two weeks of 2016. On the positive side, internal demand in the Euro area should mildly recover in the wake of decisions the ECB took last year.
New Zealand inflation slowed more than expected in the final quarter of 2015, as declining gasoline prices pushed annual price growth to the lowest level since September 1999. According to Statistics New Zealand, the nation's consumer price index dropped 0.5% in the December quarter, compared with economists' expectations for a 0.2% decline. Petrol prices became the main drag, plunging 7.0% over the reported period, while vegetable prices plummeted 17%. The weak quarterly number pushed an annual CPI growth to mere 0.1%. Even though the disappointing inflation data may not be enough to persuade the Reserve Bank of New Zealand to cut rates as soon as next Thursday, it certainly reinforced the view that the rates would be lowered from 2.5% to 2% this year. The central bank blamed weak inflation on the strong New Zealand Dollar and massive plunge in oil prices, but said it predicted inflation to move within its 1%-3% target range by early 2016. Thus, the RBNZ relies on further depreciation of the Kiwi, which would be helpful to support sustainable growth. Since the central bank last met, the nation's currency has lost 5% versus the US Dollar. However, recent declines in the oil price could push petrol prices further down, pushing the New Zealand economy into deflation.
Upcoming fundamentals: Draghi to speak at WEF, PMI data in focus
At 7:45 GMT on Friday the ECB President Mario Draghi is going to speak at the World Economic Forum in Davos, Switzerland. His speech will follow the ECB meeting that took place yesterday, where he announced readiness of the regulator to act in March and boost monetary stimulus. Among other fundamentals that can provide some impetus to the EUR/USD currency pair, we have a lot of PMIs released later throughout the European session. Purchasing Managers Index gives a first insight into economic performance of any separate country. Today analysts expect positive numbers above the threshold of 50 points for France and Germany. Composite PMI for the Euro zone for January is foreseen at 54.2 points, down minimally from 54.3 points in December.
EUR/USD aims at 1.08 after dovish ECB
EUR/USD attempted to violate the 1.08 support zone yesterday after soft comments made by the ECB President Draghi. The pair pulled back to 1.0870 by the end of trading, but today the second wave of selling is possible. As long as the pair keeps trading within triangle, the outlook will remain neutral, as suggested by daily technical indicators. In case 55-day SMA and monthly PP are crossed, the next effective demand will be offered by the monthly S1 at 1.0565. Key resistance remains 1.0978/1.1051 (100/200-day SMAs).Daily chart
In the one-hour chart we are watching the July 2015 low at 1.0808, which was shortly penetrated yesterday. In any case, the bulls will have to deal with 200-hour SMA later, any only a climb beyond 1.0882 will reestablish a moderate bullish outlook with respect to the pair.
Hourly chart
Short-range pending orders gain momentum
At the same time, bearish share in the OANDA market bounced back to 57.42% by Friday morning, after spending one trading session at much lower levels of around 53%. Traditionally, SAXO Bank market participants are more pessimistic with respect to the observed cross, as their bearish traders are enjoying a majority of 65.25% on January 22 (65% on January 21).
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."