- Sentiment is gradually improving from multi-month lows, as bullish portion stands at 42%
- Equal number of traders sees EUR/USD higher and lower in the future, according to pending orders
- Busy day for Europe is ahead, as GDP data is due
- A correction is still estimated by medium and long-term technical indicators
- Economic events to watch over the next 24 hours: German GDP (Q4) and CPI (Jan); French Non-Farm Payrolls (Q4); ECOFIN Meetings; Italian GDP (Q4); Euro zone GDP (Q4) and Industrial Production (Dec); US Retail Sales (Jan) and Reuters/UoM Consumer Confidence Index (Feb); FOMC Member Dudley Speaks
Testifying before the House of Representatives Economics Committee, RBA Governor Glenn Stevens said that the Australian economy continued to grow at a sub-trend pace, but a weaker Aussie Dollar and easy monetary policy is supporting growth. Stevens stressed that further easing is possible if inflation slows and global headwinds threaten Australia's growth trajectory. The central bank head estimated that inflation is unlikely to cause near-term issues over the next two years though, partly due to the weakening Australian Dollar, which was tracking falling commodity prices. Like most other central banks, the RBA noted the elevated risks associated with recent market volatility. The RBA cut the official cash rate two times last year in an attempt to cushion Australia's post-mining boom economy, helping to push exchange rate lower amid the commodity downturn. Stevens confirmed that rates are likely to remain steady for most or all of 2016. With regards to China, Australia's key trading partner, Stevens said that the world's second largest economy is growing weaker than its officials want and that "some observers" have expressed concern. Stevens believes that a portion of international pessimism is overdone. China has faced capital outflows and has been the driver for market turbulence, which the RBA thinks is due to policy uncertainty.
Industrial production data from France and Italy disappointed. French industrial output dropped 1.6% in December, following a negative reading in November. Analysts, however, had expected a marginal increase of 0.1%. Moreover, manufacturing production declined 0.8% in December, whereas economists had predicted a 0.4% rise. In annual terms, French industrial output decreased 0.7%, compared with a 2.8% gain in November. Preliminary GDP data showed a stable growth in the final quarter of the year, while the Bank of France expects the Euro zone's second biggest economy to accelerate the pace of growth in the first quarter of 2016. France's economy expanded 0.2% on a quarterly basis in the three months through December, while on an annual basis GDP rose 1.3%. Meanwhile, industrial production in Italy, the Euro zone's third biggest, dipped 0.7% in December, following a negative reading in the preceding month. Analysts had anticipated the reading to pick up 0.2%. On an annual basis, output of Italian factories decreased 1.0% in the reported month, compared with a revised 1.1% gain in November. The Italian economy posted mixed data over the last two months, with both PMI macro indicators showing a weak performance, amid upbeat consumer inflation and an improving jobless rate.
Upcoming fundamentals: A day for first European GDP estimates
European market focus on Friday will be on the economic growth data for Germany, Italy and the whole Euro area. By the time this release in published, the numbers for the European largest economy are already expected to be reported. Italy's data is due at 9:00 GMT and analysts foresee a strengthening pace of recovery of 0.3% in the last quarter of 2015. If matching forecasts, this will proclaim a rise from a 0.2% advance registered in July-September. In the meantime, economic expansion in the Euro zone is out at 10:00 GMT, as economists' average expectations say the currency bloc's GDP added 0.3% in the three months through December 31.
EUR/USD risks declining from up-trend
EUR/USD is now placed near the upper edge of the bullish channel pattern in the daily chart. This resistance, at 1.1370, is accompanied by the weekly R1. From here a slide is possible over the next 24 hours, as the bears are watching the monthly R3 at 1.1246 as immediate target, followed by the monthly R2 at 1.1115. Alongside, a spike above the three-month uptrend will expose the Sep high and weekly R2 at 1.1460 and 1.1504, respectively. Signals among technicals remain mixed, as daily ones are bullish and weekly studies are mostly on the "sell" side.Daily chart
In the 1H chart, EUR/USD seems to be getting ready for a downward correction. By trading close to the lower bound of the bullish channel for a fifth consecutive day, the pair refrains from advancing up to Sep/Oct highs at 1.1460/95. In case it confirms the southern up-trend, the first bearish key target level will be the 200-hour SMA at 1.1156.
Hourly chart
Sentiment grows to five-day high
As for OANDA and SAXO Bank sentiment, they see a correction as the main scenario for the foreseeable future. Only 37% of all transactions are going long on the common European currency on the OANDA market and the same expectation is shared by less than a third of SAXO Bank clients.
Spreads (avg,pip) / Trading volume / Volatility
Dukascopy Community members are bullish on the Euro in 71% of all cases
The odds are growing in favour of the EUR/USD pair's continuous advance this week. Now almost three out of four Community members see the cross higher by Friday, while the mean projection breaches the round level of 1.12. Adding to that, more than 72% of all estimates are falling into the range between 1.10 and 1.1450, meaning there is a high probability of uplifted volatility and wide-range trading.
As for some specific forecasts among traders, khalidamassi says that "EUR/USD seems to have finally waked up after breaking the range of the last three months. Until now the depth of a recovery is not known due to the expected ECB rate cut next March, but 1.1500 is on the way." On the other hand, rokasltu claims that "EUR/USD skyrocketed last week. But, taking into account possible actions from the ECB to boost inflation, in my opinion pair will gradually move down."