- Sentiment is worsening, as bearish SWFX portion surged further to 59% from 57%
- Pending orders improved, but 52% of them are still Euro-short
- Key resistance for the pair is located at 1.0940 (two-month downtrend line)
- Daily indicators suggest the currency pair will be unchanged over the next 24 hours
- Economic events to watch in the next 24 hours: Euro zone Services PMI (Jan) and Retail Sales (Dec); US Services PMI (Jan), ADP Non-Farm Employment Change (Jan), ISM Non-Manufacturing PMI (Jan) and Crude Oil Inventories (Jan 29)
The Euro zone's unemployment rate dropped to the lowest level in almost four years in December. According to Eurostat, the number of unemployed declined 49,000 to a total of 16.75 million, pushing the region's jobless rate to 10.4% from 10.5%, the lowest level since September 2011. The largest drop was registered in Spain, where the unemployment rate plunged from 23.6% to 20.8%, whereas in Finland the jobless rate rose the most, from 9.0% to 9.5%. In Germany, the region's powerhouse, the unemployment rate declined to 20-year lows at 6.2% in January. The Euro zone's unemployment reached the peak at 12.1% in March-May 2013, and the rate has been sliding since then. Despite the multi-year low, joblessness remains an acute problem, as it is still well above the 7.5% level seen before the global financial crisis. A separate report showed prices at factory gates in the Euro bloc fell more than expected in December, underscoring challenges the European Central Bank face to bring inflation to the target. Producer prices declined by 0.8% on month in December after a 0.2% drop in the prior month, compared with a 0.6% decrease expected by economists. Measured on an annual basis, prices at factory gates plunged 3.0% in the reported month. ECB President Mario Draghi promised to increase inflation with a help of monetary policy tools that the central bank still has at its disposal.
The Reserve Bank of New Zealand tried to cool expectations of further cut of the official cash rate in light of low inflation, which currently stays around zero, saying "it would be inappropriate to attempt to offset the low oil price effect through the OCR". Instead, the central bank takes a longer term approach to inflation targeting. However, the RBNZ Governor Graeme Wheeler admitted that should concerns deepen around the global economy growth prospects and its effect on New Zealand, further policy easing may be needed over the coming year. Wheeler slashed the key interest rate four times last year to all-time low 2.5%. Nevertheless, inflation eased to 0.1% in the December quarter of 2015 as oil prices plunged. Wheeler, however, reiterated that it would take longer for consumer prices to return to the central bank's 1%-3% target range than previously estimated. Meanwhile, a recent report showed that a decline in participation rate and a steep fall in the number of people unemployed in the fourth quarter brought the nation's jobless rate to the lowest level in more than six years, whereas economists had predicted a slight increase in the unemployment rate. The gauge dropped 0.7 percentage points to 5.3% in the reported period, the lowest since the March quarter 2009. Participation rate slid 0.3 percentage points to 68.4%, while 16,000 fewer people became unemployed.
Upcoming fundamentals: All eyes on first US employment indicator
European market session will be closely watched in terms of services PMI data for many countries of the region including Spain, Italy, France and Germany. While this is going to be a final January reading, many analysts see only minor downside changes for Italian and Spanish readings and flat German and French indicators. The aggregate Euro zone PMI is due at 9:00 GMT and it is likely to be unchanged at 53.6 points, signalling that activity is on the steady rise. Meantime, investors are awaiting the ADP employment report for the US. Volatility is expected, given that employment surprises are not ruled out amid a recent market turmoil, which could significantly influence new hiring activities in the country. Survey average stands at 193,000 for January, down from 257,000 in December.
EUR/USD sets eye on key resistance at 1.0940
EUR/USD booked some moderate gains throughout the session on Tuesday, but it was repeatedly contained by the two-month downtrend line at 1.0940. This one remains a key supply level for the pair, which also guards 100-day SMA and monthly R1 at 1.0959/72. Unless all of them are breached, the focus will not shift to 200-day SMA at 1.1052. On the other hand, the bears are also required to confirm the support at 1.0862/41 in order to push further expectations downwards. By closing below the monthly pivot point, the next lower target will be the January low at 1.0711.Daily chart
In the one-hour chart the cross is nearing the December-January downtrend at 1.0945. Ability to deal with this resistance should pave the way for more gains in the direction of January uptrend at 1.10. A failure to penetrate the trend-line may lead to a sell-off down to 200-hour SMA at 1.0869, followed by July 2015 low at 1.0808.
Hourly chart
SWFX distribution is the worst for bulls in one month
Situation has also worsened quite substantially in both OANDA and SAXO Bank markets since our latest report yesterday. The share of longs dropped towards 38% by Wednesday morning, meaning EUR/USD continues to have the most negative bullish-bearish gap among all major currency pairs. Alongside, more than 71% of all SAXO Bank clients are now betting on the Euro's drop against the US currency.
Spreads (avg,pip) / Trading volume / Volatility
Dukascopy Community members are divided on perspectives of EUR/USD
Despite pure negative development of the pair during the end of January 25-29 week, participants of our weekly Community Forecasts quiz are completely divided in their forecasts for the period, which is due to end on February 5. Average expectation for Friday-end is gradually nearing the 1.09 mark.
As for some specific forecasts among traders, Besim76 says that "EUR/USD slipped 18 points after the release of Euro zone inflation data and weak German retail sales. The US dollar soars as oil prices continued to rally. Euro zone inflation ticked up in January, only modest relief for the European Central Bank, which is still likely to cut rates again as price growth could turn negative by the spring and lending suffered an unexpected setback."