- There is a negative gap of ten percentage points between bulls and bears in SWFX market
- Pending orders are held by almost the same number of long and short traders
- US housing data and industrial production to be monitored on Wednesday
- Daily technical studies are still overwhelmingly positive on EUR/USD
- Economic events to watch over the next 24 hours: US Housing Starts and Building Permits (Jan), PPI (Jan) and Industrial Production (Jan); FOMC Meeting Minutes; FOMC Member Bullard Speaks
German investor confidence declined to the lowest level since October 2014 as equities plunged amid slowing China's economic growth and worries over the profitability of Euro zone lenders. The ZEW institute reported that its confidence index plummeted to 1.0 points for February, compared with 10.2 points in the prior month. The current situation sub-index came in at 52.3 in the reported month, decreasing from January's 59.7 and missing analysts' expectations of 55.0 points. China's economic growth is slowing as officials try to rebalance the economy from traditional industry-led growth towards services-driven expansion. The pullback is weighing down German exports. The Bundesbank cut its forecast for German inflation, referring to renewed drops in oil prices. Consumer prices growth in the Euro zone's number one economy is expected to average approximately 0.25% in 2016, compared with a December prediction of 1.1%. For 2017, the estimates stood at 1.75%, down from 2%. However, the central bank also said cheaper energy is stimulating the domestic economy and coupled with a robust jobs market may contribute to acceleration in growth this quarter. Thus, the central bank expects the growth pace to accelerate in the first quarter of 2016 compared with the end of 2015.
Britain's inflation climbed to the highest level in a year in January as an increase in alcohol and clothing prices pushed up the cost of living. The annual consumer price index rose to 0.3% in January, up from 0.2% in the prior month, according to the Office for National Statistics. Alcohol and tobacco were the main contributors to the increase as they jumped 1.3% compared with January 2015. The ONS reported that inflation also rose as fuel and food prices declined less than they did a year ago. Core inflation, which strips out volatile components such as energy and food, slowed to 1.2%. Inflation is predicted to edge up slowly this year, as the impact of global oil plunge drops out of the headline rate. However, the Bank of England expects the price growth to remain below its 2% target until 2018. The central bank predicts consumer prices to rise to 0.5% by the summer. Financial markets are not anticipating an interest rate hike until the end of the decade due to mounting uncertainty over the global economy and the oil price rout. The central bank lowered its growth forecasts for the British economy and voted to keep interest rates on hold at 0.5% at the meeting earlier in the month. The BoE revised its forecasts for UK GDP for the next three years to 2.2% for the current year, 2.4% in 2017 and 2.5% in 2018.
Upcoming fundamentals: A US-dominated day with FOMC in focus
Economic calendar for Wednesday includes many events from the other side of the Atlantic, while European trading should remain quite silent over the next 24 hours. First and foremost, US housing data will turn on the data flow. Building permits and housing starts for January are first up at 13:30 GMT, as both indicators are foreseen to have experienced a minimal improvement during the first month of 2016. Industrial production data from America is out at 14:15 GMT. Analysts are looking a first increase in output in six months, which is set to grow by 0.3% in January on a monthly basis. Later in the evening, we are going to hear from the St. Louis Fed President James Bullard who is going to speak about US economy and monetary policy at the CFA Society of St. Louis at 21:00 GMT.
EUR/USD gets bullish momentum from 1.1115
EUR/USD was largely unchanged over Tuesday after two days of sharp losses. A sell-off is now being contained by the immediate cluster of supports at 1.1115/00. Here we have the monthly R2, which is guarded by the first weekly demand and 20-day SMA. We expect a recovery to take place shortly, given that daily technical indicators are also strongly pointing to the North. Moreover, in any case the bears are likely to fail at the 1.1052 mark represented by the 200-day SMA. The first bullish goal is intact – the 1.1238/46 area (weekly PP; monthly R3).Daily chart
Even though in the daily chart it may seem that the pair is ready to recover, the one-hour chart assumes an opposite scenario for the nearest future. Here EUR/USD is hovering below the 200-hour SMA for a third consecutive day, meaning we do have a fact consolidation on hands. The only bullish hope is September 2015 low at 1.1086. If this one fails, then the short traders will insist on a drop down to the July low of the last year at 1.0808.
Hourly chart
Sentiment remains bearish, but broadly stable
In the meantime, OANDA and SAXO Bank sentiment on the Euro has continued to improve since our previous report on Tuesday. Even though most of the transactions are placed to get rid of the common European currency, bearish portions were ultimately narrowed down to 57.66% (OANDA) and 64.56% (SAXO Bank).
Spreads (avg,pip) / Trading volume / Volatility
Dukascopy Community members are bullish on the Euro in more than 64% of all cases
Even though around three our of four Dukascopy Community members had expected the Euro to grow at the expense of the Dollar last week, during a new five-day period the bets on Euro's climb fell down to 64%. Nonetheless, it seems to remain as a clear bullish signal from the traders. The average weekly estimate for Friday, February 19, is 1.13. However, the range of expectations is largely broad and more than a half of all projections is placed with the wide range of 1.11-1.14.
As for some specific forecasts among traders, westline suggests that "EUR/USD has been trading on a bullish trend line for the past two weeks and the H4 chart is showing possible further uptrend." However, Likerty is bearish on the researched cross. He says that "EUR/USD with all the majors are in a corrective mode (USD Strength), which has a chance to fade all the gains made during the previous two weeks."