- Difference between bulls and bears is minimal in favour of the latter
- Pending orders worsen, as more traders are betting the Euro is going to plunge after ECB
- All eyes on the ECB, as the central bank is estimated to ease monetary policy and curb deposit rate
- Aggregate daily technical indicators continue providing a bearish signal for EUR/USD
- Economic events to watch over the next 24 hours: German Trade Balance (Jan); French Industrial Production (Jan); Spanish Retail Sales (Jan); Swiss CPI (Feb); Greek Unemployment Rate (Dec); ECB Interest Rate Decisions and Press Conference; US Unemployment Claims (Mar 5) and Monthly Budget Statement (Feb)
UK industrial production recovered in January after a sharp decline in December, led by a stronger than expected increase in manufacturing. Industrial output climbed 0.3% from December, when it dropped 1.1%, according to the Office for National Statistics. Economists, however, had expected a gain of 0.4%. Manufacturing increased 0.7%, while utilities increased production by 4.3%. The findings of the Confederation of British Industries survey showed the recent depreciation of the Pound helped some manufacturing firms to stabilize output and export orders. The CBI said that despite market volatility in emerging markets, China still represents a huge opportunity for the UK's industry. Industrial output remained 10.2% below its peak in early 2008 during three months to January 2016, while manufacturing production was 6.4% smaller. The UK economy slowed in the second half of last year and economists predict that it could lose more momentum in early 2016. Analysts say that Britain's referendum on its European Union membership could also drag on growth. The EEF, an association of British manufacturing employers, revised its 2016 UK growth outlook down to 1.9%, from 2.1% and lowered its manufacturing growth forecast to 0.6% from 0.8%.
The Reserve Bank of New Zealand stunned markets by cutting the official cash rate and said that further easing may be required to help offset a recent decline in inflation expectations and help faltering dairy sector amid weak global economic background. The RBNZ lowered the country's cash rate by 25 basis points, taking it to a record low of 2.25%. In a statement, the central bank said the outlook for the world's economy had deteriorated since December, due to slower growth in China and Europe. The surprised decision came just five weeks after Governor Graeme Wheeler's speech in which he signalled no rush to ease further in response to weak inflation. The New Zealand Dollar slumped more than 1 US cent following the rate cut, which financial markets had assigned a 30% probability. Most economists now expect a second reduction in the OCR in June. Headline inflation climbed just 0.1% in the December quarter, according to Statistics New Zealand, the weakest annual increase in the price level since 1999. Mr Wheeler said the main reason inflation was so weak was due to ongoing decline in fuel prices and low imports prices. The central bank is worried that weak inflation will influence firms' price and wage setting behaviour. A key risk to the nation's economy remains the dairy sector, where export commodity prices remain some 55% lower than their 2014-peak.
Upcoming fundamentals: Draghi takes centre stage, investors anticipate action
What to expect from the European Central Bank today after a shocking disappointment delivered back in December? This question is being asked by many analysts and market participants. Inflation in the Euro zone remains very subdued and even oil prices seem not to be an excuse any more, as the core consumer price index decelerates as well. Mario Draghi, the ECB chief, has pointed to the possible today's action for quite some time. Economists are concerned about the scope of easing the ECB will offer later on Thursday. Among possible decisions, the market is pricing in a 95-96% chance of a deposit rate cut by ten basis points to -0.40%, with another 5% futures forecasting this rate is going to be trimmed to -0.50%. However, some Governing Council members expressed doubts concerning effectiveness of even more negative interest rates, especially noting implications for profitability of commercial banks. The ECB is additionally foreseen to possibly expand monthly asset purchases by 10-20 billion euros per month from the current monthly level of 60 billion euros. Extension of the QE is less likely, given the December decision to prolong the programme until March 2017.
EUR/USD indecisive ahead of ECB decision
The bears performed strongly until the beginning of US session on Wednesday when the EUR/USD cross managed to erode losses and bounce back to 1.10. In the morning on Thursday we see another round of selling pressure, but movements remain quite hesitant. It is all about the ECB meeting today. In December EUR/USD had spiked on disappointment. Bearish outcome of the gathering may send the pair well down to 1.08, in move that is estimated by daily technical indicators. However, the bulls will try to catch the first monthly resistance at 1.1227 in case there is dissatisfaction with the ECB's policy.Daily chart
More uncertainty is added by the one-hour chart where EUR/USD is fluctuating around the January uptrend line, but we see no confirmation from either side at the moment. Some support is offered by the 200-hour SMA, currently at 1.0939, which is increasing bullish odds on the matter. For the positive expectation to materialize the pair is required to hold above 1.1015 for two days in a row.
Hourly chart
Pending orders drop further, SWFX sentiment almost neutral
Currently, EUR/USD's sentiment in the OANDA market seems to be the worst among major currency pairs there. Advantage of the bears amounts to ten percentage points. Alongside, the gap between bullish and bearish SAXO Bank transactions rose to 25% from 22% on the basis of the last 24 hours.
Spreads (avg,pip) / Trading volume / Volatility
More than three fourths of Dukascopy traders see the Euro higher against Greenback
In this week's time, the sentiment on this currency pair changed significantly, as now 76% of traders predict the Euro to rise in value. Among important news, on Thursday, the ECB is to announce its monetary policy decision. The rate announcement will be followed by a post-policy meeting press conference with President Mario Draghi.
As for opinions among members of the Dukascopy Community, williamb assumes that "this pair is ready to rise because it is oversold. Fundamentals also could contribute to pair's increase due to the weakness in the Asian market." From the other side of the coin, Khimit thinks that "the pair is running on a downtrend and a second break is visible around 1.10 mark. I am expecting a downtrend continuation.