EUR/USD skyrockets 230 pips to reach 1.1150

Source: Dukascopy Bank SA
  • 55% of all SWFX traders continue forecasting that EUR/USD will depreciate
  • More than 50% of all pending commands are set to buy the Euro on Thursday morning
  • All eyes on 200-day SMA and EUR/USD's ability to hover above it for a second day
  • Ignoring pair's development, daily technical indicators remain mixed
  • Economic events to watch over the next 24 hours: ECB President Draghi Speaks; ECB Member Mersch Speaks; US Unemployment Claims (Jan 30), Unit Labour Costs (Q4) and Factory Orders (Dec)

© Dukascopy Bank SA
American currency literally crashed on Wednesday, while dipping by 1.70% against the world's second biggest reserve currency – Euro. In general, the Dollar was sliding down across the board, as it wiped out all this year's rally due to signs the Federal Reserve will not increase interest rates any time soon. Analysts are increasingly sceptical about hikes from the Fed, as market data continues to be quite disappointing. Yesterday statistics revealed that US ISM Services PMI indicator tumbled to 53.5 points in January from 55.3 points a month before. Markets have therefore largely ignored a positive piece of employment data from ADP. According to them, the world's largest economy generated 205,000 jobs in January, or more than 193,000 jobs that had been estimated before the release. EUR/GBP added 0.35% on Wednesday, as economists are awaiting extremely dovish stance from the Bank of England later on Thursday when it releases new economic projections along with the rate decision. EUR/NZD tanked the most by 0.61% amid a recovery in oil prices, which is also being extended through Thursday.

Businesses in the Euro zone began the year on a firmer footing than first estimated. Markit's final composite PMI rose to 53.6 in January, compared with the flash reading of 53.5 but weaker than December's 54.3. The final gauge measuring business activity in the services sector was in line with the flash estimate at 53.6, but down from 54.2 recorded in December. Nevertheless, the headline index has remained above the important 50 mark for 31 straight months. The data is consistent with economic growth of 0.4% in the first quarter of 2016, despite the financial markets rout and concerns about the economy of China. Yet, the composite report continued to point to divergences in the 19-nation economy, with Spain and Germany driving growth. France surprised to the downside, with the index at just 50.2, while growth in Italy also slowed. Furthermore, the Euro area's manufacturing and services sectors cut prices at the fastest pace in almost a year in January, intensifying concerns about weak inflation in the region. A separate report showed retail sales in the Euro bloc increased for the first time in four months in December. Sales at European retailers climbed by an expected 0.3% in the reported month from November, and by 1.4% from December 2014. The data indicated that the boost to households' disposable income from lower oil prices continued to support their spending, a key driver of the recovery over the past year.

The British dominant services sector continued to expand in January, albeit concerns about financial market turbulence and the possibility of "Brexit" pushed business morale to the lowest level in three years. The Markit/CIPS services PMI climbed to 55.6 last month, up from 55.5 in December, beating expectations for a decline to 55.3. Nevertheless, the reading remained below its average of 57.2 recorded in the three previous years. The survey's findings were mixed, as new business rose at the fastest pace since July, whereas output growth was weaker compared with the three-year average trend rate and the mood among companies was gloomy. The data came ahead of the Bank of England's "Super Thursday", when the central bank will reveal its latest interest rate decision, monetary policy stance as well as the Inflation Report. The overwhelming majority of economists expect the central bank to remain pat, while traders on money markets pushed back their expectations to early 2018. The UK's economy, which relied on the services sector to boost growth at the end of last year, is likely to grow 0.6% in the first quarter of 2016, gathering a bit of speed from estimated growth of 0.5% in the December quarter. The National Institute of Economic and Social Research forecast the economy to grow by 2.3% this year.

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Upcoming fundamentals: Draghi talks in Frankfurt, Mersch in Zurich



Two ECB officials including the President Mario Draghi and member of the Executive Board Yves Mersch will speak throughout the morning session on Thursday. Draghi will take the stage at 8:00 GMT, while delivering a lecture at the conference organised by Deutsche Bundesbank in Frankfurt, Germany. Yves Mersch will talk together with UBS bank's Chairman Axel Weber in Zurich, Switzerland. The discussion will include a Q&A session, meaning some upcoming monetary policy details and hints remain a possibility.


EUR/USD skyrockets 230 pips to reach 1.1150

Poor services data from the US hit the Dollar on Wednesday. EUR/USD touched the highest level since October, while crossing several crucial resistances. Those included 100 and 200-day SMAs at 1.0958/1.1052. Additionally, it erased Dec-Jan and Aug-Oct downtrends. The pair should trade above 200-day SMA on Thursday in order to confirm medium-term bullish expectations. The key short-term supply is also represented by weekly R3/monthly R2 at 1.1115. Success here will push odds in favour of a spike to monthly R3 at 1.1246 and Sep 2015 high at 1.1460 in the long-term.

Daily chart
© Dukascopy Bank SA

Both monthly uptrend and two-month downtrend were breached on Wednesday. EUR/USD continued to appreciate in the direction of Sep 2015 low at 1.1086 and closed the session above it. However, a correction is likely over the next 24 hours, but overall long-term risks remain skewed to the upside.

Hourly chart
© Dukascopy Bank SA

More SWFX traders see EUR/USD even higher

After the aforementioned shocking move of the most traded FX cross on Wednesday, more traders from the SWFX market are now estimating additional rallies of this currency pair. The portion of long positions went up to 45% (41% yesterday), meaning it recovered from the lowest level in one month. On top of that, 55% and 60% of all pending orders are presently set to buy the 19-nation currency at the expense of the Greenback in 50 and 100-pip ranges from the spot, correspondingly.

In the meantime, OANDA's sentiment with respect to EUR/USD has shifted in another direction since yesterday morning. At the moment only 37% of their clients are betting on the Euro's growth, down from 38% on Wednesday. The bears are therefore controlling 63% of the entire market, the highest share among all major crosses at OANDA. At the same time, SAXO Bank distribution between the bulls and bears is largely unchanged at 30-70%.











Spreads (avg,pip) / Trading volume / Volatility




Dukascopy Community members are divided on perspectives of EUR/USD

© Dukascopy Bank SA

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."

Average forecast says EUR/USD will trade at 1.0950 by May

Meanwhile, traders, who were asked regarding their longer-term views on EUR/USD between Jan 4 and Feb 4 expect, on average, to see the currency pair around 1.0950 by the end of May. Though the majority of participants, namely 51% of them, believe the exchange rate will be generally below 1.10 in ninety days, with 32% (-2%) alone seeing it below 1.06. Alongside, 31% (-1%) of those surveyed reckon the price will trade in the range between 1.10 and 1.16 on May 31.

© Dukascopy Bank SA

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