EUR/USD muted after Draghi's comments

Source: Dukascopy Bank SA
  • Bullish market share bounced back to 44% from 46% back on Monday
  • Majority among negative pending orders is marginal (6-8%) over bullish commands
  • US markets to reopen Tuesday; several FOMC speeches to move the pair
  • Daily technical studies are still overwhelmingly positive on EUR/USD
  • Economic events to watch over the next 24 hours: Italian Trade Balance (Dec); German ZEW Economic Sentiment (Feb); US Empire State Manufacturing Index (Feb); FOMC Members Harker, Kashkari and Rosengren Speak

© Dukascopy Bank SA
As US markets were closed for trading on Monday, all eyes were on the ECB President Mario Draghi's speech before the European Parliament's Economic and Monetary Affairs Committee. As expected, the head of the ECB reiterated his view about the March policy meeting where the regulator is expected to add to support in terms of either cutting deposit rate even lower or expanding the QE programme. Draghi said the ECB is ready to do its part, but stronger efforts are needed from all policymakers including the fiscal ones. He underlined that the monetary policy has in reality been the only expansionary policy during recovery, while Euro zone governments have implemented tough austerity measures. While awaiting more support from the ECB, market participants sold off the Euro against its major peers except the Japanese Yen and Swiss Franc. The strongest decline was posted by components with commodity currencies, such as EUR/AUD (-1.31%) and EUR/NZD (-1.25%), also partly due to a rebound in oil prices.

The European Central Bank President Mario Draghi said the central bank "is ready to do it part" in March if the financial market volatility or the pass-through effect of low oil prices reduces inflation expectations. Draghi also added that fiscal policies including public investment and lower taxation should put the Euro area's economy on a firmer ground. ECB President welcomed improvements in the banking sector, saying that Euro bloc's banks have significantly strengthened their capital positions. However, Draghi acknowledged that some parts of the banking sector still faced a number of challenges, including "uncertainty about litigation and restructuring costs in a number of banks working through a stock legacy assets. Last week saw renewed market volatility, particularly on Euro zone bank shares, which Draghi said was due to slowing growth in emerging markets and falling commodity prices, as well as anticipation that new financial regulations and lower interest rates would drag down bank profits. Meanwhile, the Euro zone's trade surplus widened in December due to a steep decline in imported energy prices. According to Eurostat, the trade surplus of the currency bloc surged to 24.3 billion euros in the reported month, up from 23.6 billion euros a year earlier. Both exports and imports increased 3% compared with December 2014.

The Reserve Bank of Australia continues to monitor closely developments in global markets and stands ready to lower interest rates further if the economy requires additional support. The central bank has held the official cash rate unchanged since May but indicated that it is keeping an easing bias, with soft domestic inflation providing the bank scope to offset the impact of weaker global conditions on the nation's economy. The cash rate was left at a record-low 2.0% for the eighth meeting in a row in February, the bank's first meeting of the year. The officials judged that there were "reasonable prospects" for growth in the Australian economy, and that employment had been stronger than previously estimated. One major risk to Australia's growth outlook is the recent turbulence in global financial markets, resulting from concerns over China's economy. Market wobbles in China have seen its share market plunge, capital flee at a record pace and the slowest growth pace last quarter since 2009. The RBA, however, said China's officials had scope to respond to an economic crisis, but added any sharp slowing in China's economy would have spill-over effects for the region, including Australia. Economists continue to expect further rate cuts in the second half of the year as headwinds to growth stiffen, and hiring slows.

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Upcoming fundamentals: Busy European session ahead



There are plenty of fundamental events scheduled for the European part of Tuesday's trading. Italian trade data is first up at 9:00 GMT, followed by the ZEW economic sentiment survey for Germany, the Euro zone's powerhouse, at 10:00 GMT. The latter is estimated to drop considerably in February, to zero points compared to 10.2 points registered in the preceding month. The zero reading divides optimism from pessimism among 275 German institutional investors and analysts, meaning the data is likely to carry a high level of importance and markets will pay corresponding attention to that.


EUR/USD muted after Draghi's comments

ECB President Draghi confirmed his readiness to act in March, which used to have an immediate bearish impact on the Euro vs Dollar. The pair slumped towards 1.1150, therefore closing the session almost 90 pips lower from the opening mark. The bears are aiming at the support cluster near 1.11, namely the monthly R2, weekly S1 and 20-day SMA. Success here should imply a sell-off down to the major 200-day SMA at 1.1053. This level will be expected to contain a decline for some period of time, given that daily technical indicators remain committed to the bullish scenario.

Daily chart
© Dukascopy Bank SA

The first important bearish signal is coming from the one-hour chart where EUR/USD slid under the 200-hour SMA, currently at 1.1218. The spot (1.1154) has not traded below this line since the first day of February. Adding to that, inability of the September 2015 low at 1.1086 to support the cross is likely to result in a much sharper drop in the direction of 1.08 (July 2015 low).

Hourly chart
© Dukascopy Bank SA

Sentiment remains bearish, but broadly stable

There has been a downward change for the number of long open positions in the SWFX market, which declined to 44% by Tuesday morning from 46% a day earlier. Bullish portion has therefore bounced off the highest level in three weeks. Alongside, pending orders are literally unchanged for a second consecutive trading day. Commands set to acquire the Euro in 50 and 100-pip ranges from the current market price account for 46% and 47%, respectively.

At the same time, percentage of the bulls in the SAXO Bank market has risen slightly above a third over the last 24 hours of trading. Now it is standing precisely at 34.34%. As for the OANDA market, here only some 40% of all traders are betting on the common currency's rally on the back of the Greenback.













Spreads (avg,pip) / Trading volume / Volatility



Average forecast says EUR/USD will trade at 1.11 by May

Meanwhile, traders, who were asked regarding their longer-term views on EUR/USD between Jan 16 and Feb 16 expect, on average, to see the currency pair around 1.11 by the end of May. Though the majority of participants, namely 55% (-2%) of them, believe the exchange rate will be generally below 1.12 in ninety days, with 34% (-1%) alone seeing it below 1.08. Alongside, 33% of those surveyed reckon the price will trade in the range between 1.12 and 1.18 on May 31.

© Dukascopy Bank SA

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