- Bullish share in the SWFX market is 45% on Tuesday as bears safeguard majority
- Pending orders remain in the bearish territory, based on both 50 and 100-pip ranges from the spot
- Dovish Fed could help EUR/USD in regaining area above 1.10
- 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: US Services PMI (Jan), CB Consumer Confidence (Jan), HPI (Nov) and Richmond Fed Manufacturing Index (Jan)
German business confidence dropped for a second month in a row in January to the lowest level in almost a year, with manufacturers and construction companies becoming more pessimistic about the outlook for their businesses. The Ifo's institute's business climate index, based on a monthly survey of some 7,000 firms, declined to 107.3, down from a revised 108.6 last month. German manufacturing has been feeling ill winds stemming from a slowdown in global trade, with China's weakest economic growth in more than two decades sending markets into turbulence and urging the International Monetary Fund to downgrade its outlook for 2016. The German government predicts the nation's economy to expand 1.8% this year. German companies may feel some comfort from the European Central Bank President Mario Draghi's comments last week, signalling that the central bank had plenty of tools at its disposal to stoke Euro zone's inflation and was both determined and willing to act. In the meantime, Draghi highlighted that the ECB should fulfil its inflation mandate in order to keep its credibility. ECB policy makers gather on March 10, when they will weigh whether the 1.5 trillion-euro QE programme and negative interest rates are sufficient to meet the inflation goal of just under 2%.
Japan logged a trade deficit for a fifth consecutive year in 2015, after the country slipped into deficits following the 2011 nuclear accident in Fukushima, which led to closures of reactors and pushed up imports of oil and gas. Yet, the trade gap shrank 78% over 2014, falling to the lowest level in four years, according to the Finance Ministry, as lower oil prices pushed down import costs, while a weaker Yen spurred exports. Imports plunged 8.7% in 2015 from a year earlier, while exports rose 3.5%. Last year, the world's third biggest economy's trade shortfall was 2.8 trillion yen, compared with a massive 12.8 trillion yen in 2014. Furthermore, Japan's merchandise trade balance swung into surplus in December, as oil prices plunged, while the Japanese Yen rose versus other currencies. The December trade surplus came in at 140.2 billion yen, compared with a deficit of 379.7 billion yen in the preceding month and a deficit of 665.6 billion yen in December 2014. However, Japan's exports have been falling amid a slowdown in China's economy. After surging an annual 7.9% in January-June period, exports climbed a modest 0.6% in July-December. Exports to China dropped 1.1% in 2015, whereas exports to the US surged 11.5%, making the US the top destination for Japan-made goods. At the same time, Japan's imports of crude oil, gas and other fuels plummeted 34% in 2015.
Upcoming fundamentals: US fundamental session to dominate on Tuesday
European economic calendar is largely empty on Tuesday, meaning markets are going to be focused on American data later in the day and Fed meeting that takes place today and tomorrow. At 15:00 GMT the Conference Board's consumer confidence index will be available, and analysts see January data improving slightly to 96.6 points from 96.5 in December. Following a positive consumer sentiment release by the University of Michigan earlier in the previous month, there is a reason for thinking that today's data will also bring a good surprise. If published in line with expectations, it will be another confirmation that US consumers to mostly resilient to recent global equity market turmoil, while lower oil prices only provide more ground for optimism.
EUR/USD is back into triangle, awaits Fed
Monday trading session saw inflow of funds into the Euro, as risk-aversion reversed EUR/USD back to the North. The pair is now facing an immediate resistance at 1.0849/67, namely weekly pivot point and 20-day SMA. Medium-term bulls are hoping for dovish Fed tomorrow and looking at tougher supply near 1.0960/80 that is reinforced by Dec-Jan downtrend and 100-day SMA. On the other hand, bearish target is December low at 1.0521, and while EUR/USD remains under two-month trend-line the outlook will preserve a negative bias.Daily chart
The bulls are still focusing on 200-hour SMA in the one-hour chart. This resistance line, currently at 1.0876, is putting some downside pressure on the most traded FX cross. Gains above here will reopen the Jan 15-20 downtrend near 1.0965 and general January uptrend some 20 pips more to the upside.
Hourly chart
Sentiment and pending orders maintain bearish views
At the same time, the portion of bearish positions in the OANDA market rose from 51% to more than 55% by Tuesday from a day earlier, even though this level remains somewhat below the long-term average of 57-58%. On top of that, SAXO Bank clients are short on the common European currency in almost 68% of all cases, as they have always been more skeptical with respect to EUR/USD's perspectives.