- Bullish share in the SWFX market holds steady at 46%
- Pending orders have tumbled considerably over the weekend, as they foresee losses for EUR/USD
- EUR/USD to trade in anticipation of the Fed monetary policy meeting later this week
- Technicals on a weekly basis expect the pair to depreciate; mixed outlook on a daily basis
- Economic events to watch in the next 24 hours: ECB President Draghi Speaks; German IFO Business Climate (Jan); Italian Industrial Sales (Nov), Industrial Orders (Dec), Non-EU Trade Balance (Dec) and Retail Sales (Nov); Bundesbank Monthly Report; US Dallas Fed Manufacturing Business Index (Jan)
While services sector in France seems to be growing again in January 2016, manufacturing is now on the verge of contraction. A monthly PMI survey revealed that manufacturing PMI stood at 50 points this month, down from 51.4 points in December, whereas analysts foresaw an increase to 51.6 points. Services PMI indicator was at 50.6 points, up from 49.8 in December. All readings were preliminary at this stage and could be subjects to changes later in early February. As for Germany, here both vital sectors of the country's economy continued developing at a more positive pace than their French neighbours. Manufacturing and services PMI dipped down to 52.1 and 55.4 points in January from 53.2 and 56 points in December, respectively. The pan-European reading for the whole European production and services sector decreased to 52.3 and 53.6 points, accordingly. This European indicator depends on responses from 3000 companies in the region and is therefore considered as a very reliable for tracking sentiment among businesses. Industry analysts have come to an agreement that a slowdown was predominantly caused by a recent market turmoil that sent global stock and commodity markets into correction or even bear market territory. Despite that, Europe is set to continue recovering in 2016 and January PMIs confirm that activity is growing rather than declining in most of the European economic powerhouses.
Retail trade in the United Kingdom was quite weak throughout the last month of 2015 when the gauge is traditionally expected to pick up due to Christmas holidays. Nonetheless, this December was a disappointing month for British retailers who saw a 1% drop in overall sales on a monthly basis. Such a sharp percentage change, however, followed a revised 1.3% advance a month earlier, meaning last month's development was largely a correction towards the norm. Clothing and footwear stores took the steepest hit in December, with two main reasons of that being warmer than usually weather and floods that held consumers away from stores. On top of that, analysts are warning that more people are now shopping at online stores, thus decreasing the role of traditional supermarkets. Along with retail sales, Friday data included latest numbers on UK public sector borrowing. Public finances in the second largest economy of Europe improved in December due to a boost from much better tax receipts. Deficit excluding banking sector plunged to 7.5 billion pounds last month, down from 12.9 billion pounds in November and 12.5 billion pounds in December 2014. Even though there are three months to go until the current UK financial year end in March, public sector year-to-date net borrowing has already surpassed the government's target of 68.9 billion pounds, by reaching 74.2 billion pounds. However, January usually is a surplus month, which can improve the overall situation quite considerably.
Upcoming fundamentals: Draghi speaks in Frankfurt, German IFO set to decrease
As ECB President Mario Draghi affirmed his ability to move not only the Euro, but also the whole market, his speech on Monday will be definitely closely watched. Moreover, this event is the only important one along with German IFO business climate index on Monday. Draghi will speak in Frankfurt and may reveal some details about possible monetary policy changes in March. As mentioned before, German data will be out at 9:00 GMT. In December the business confidence index stood at 108.7 points, down from 109 points in November. In January analysts estimate the IFO institute to release a reading of 108.5 points, assuming a moderate deterioration is on the table. IFO surveys about 7,000 German businesses, meaning importance and reliability of the index tends to be high.
EUR/USD tries to recover from 1.08
Bears approached the market on Friday, following earlier ECB comments about possible policy changes in March. EUR/USD dipped below 55-day SMA and monthly PP to close the week just under 1.08. In the Asian session on Monday, however, it attempts to regain strength and come back into the triangle pattern. If successful, it will reestablish our mild positive view towards the pair with a possibility to extend a rally up to 1.0950-1.10 area in the mid-term. In case EUR/USD stays below 1.08 today, the focus will turn to 1.0723 (weekly S1) for the next 24 hours and 1.0521 (recent low) for the long run.Daily chart
In the 1H chart the pair is fluctuating around 1.08 for a third trading day in a row, meaning the outlook is still largely unclear. The bulls are capable of pushing EUR/USD up to 200-hour SMA (1.0876), followed by Dec-Jan downtrend and Jan uptrend at 1.0966/83. Alongside, a consolidation below 1.08 will probably make a sell-off practically inevitable.
Hourly chart
Sentiment unchanged from Friday, as pending orders slump
Meanwhile, OANDA clients are now much more bullish with respect to the EUR/USD cross. The bulls have managed to push their market portion from sub-43% to 49% during the weekend. Despite OANDA improvement, SAXO Bank market participants are traditionally keeping a more pessimistic stance with respect to the pair, as their bearish traders are holding the majority of 63% on January 25.