- Bullish market share lost 15% over last 12 working days; today is stands at just 40%
- Pending orders are set to acquire the Euro in >50% of all cases for a fourth consecutive day
- Pair's ability to penetrate two major downtrend lines at 1.1320/45 will expose February high at 1.1377
- Daily RSI indicator is telling us the cross remains overbought, but aggregate signal is still mixed
- Economic events to watch over the next 24 hours: German PPI (Feb); US University of Michigan/Reuters Preliminary Consumer Confidence Index (Mar); FOMC Members Dudley, Rosengren and Bullard Speak
While inflation in the Euro zone slid into contraction on an annual basis, inflationary pressures rose across the region month-on-month in February. According to Eurostat, consumer prices in the 19-nation currency bloc declined 0.2% on a yearly and seasonally adjusted basis last month, compared with the 0.3% growth reported in January. Meanwhile, the core rate, which strips out energy, food, alcohol and tobacco, was 0.8% in the year to February, up from the initial estimate of 0.7%. On a monthly basis, the consumer inflation edged up 0.2%, a significant pickup following a massive 1.4% decline in January and zero growth in December. The European Central Bank remains concerned that low or negative inflation would force consumers to put off spending, while business may opt against investing, thereby hurting the region's fragile recovery. Therefore, the negative inflation rate was the main reason behind the central bank's decision to enlarge its stimulus measures for the Euro zone economy. The ECB hopes that the package will boost economic activity, underpinning inflation. Moreover, the central bank will be hoping that with oil prices having recently rebounded from multi-year lows inflation will start to pick up in the coming months.
The Bank of England's nine-member rate-setting committee voted unanimously to keep interest rates on hold at 0.5% and the size of its bond portfolio at 375 billion pounds. It was the second month in a row policy makers were unequivocal on the decision, after Ian McCaffery, an external member of the Monetary Policy Committee, abandoned his rate hike vote in February referring to a weaker outlook for wages. Despite an increased level of uncertainty and sluggish global demand, policy makers said interest rates were likely to rise rather than decrease in the future to ensure inflation returns to its official target of 2% "in a sustainable fashion," according to the Monetary Policy Committee minutes. On top of that, the BoE voiced a fresh warning about the Britain's upcoming referendum on membership of the European Union, saying that uncertainty over the outcome may result in slowing the economy in the months ahead of the vote. The central bank said the upcoming vote on June 23 could delay some spending decisions, though it said recent data suggested growth would keep the same momentum this quarter as it had at the end of last year. The BoE's statement marks the first time that officials have explicitly expressed their concern that the looming referendum risks acting as a further drag on growth amid an already challenging global environment.
Upcoming fundamentals: FOMC members to speak in the wake of Fed meeting
Three speakers are going to take stage on Friday. All of them are voting members of the Federal Open Market Committee in 2016. Firstly, at 13:00 GMT the New York Fed President William Dudley will deliver some opening remarks to a conference that will discuss bank supervision in the US. Two hours later the Boston Fed President Eric Rosengren will talk at the same conference as his colleague from the Empire State. In the meantime, the St. Louis Fed President James Bullard will speak in Frankfurt, Germany at the International Forum on Monetary Policy. These are first appearances of FOMC members before the public after the Fed meeting two days ago. Markets are going to wait for indications of these particular members' future policy estimates. As for another piece of US statistics, the preliminary consumer sentiment index calculated by the University of Michigan and Reuters is out at 14:00 GMT. The mean estimate calls for a rise to 92.1 points in March, up from 91.7 in the preceding month.
EUR/USD risks falling from 8-month downtrend
EUR/USD rallied for a second day in a row on Thursday, owing to weaker US Dollar in the wake of dovish Fed decisions a day before. As expected, the currency pair eroded the weekly R1 and surged to the August-March downtrend at 1.1320. This one is guarded by another downtrend (October-March) at 1.1345, and success here would allow for an advance beyond the February peak of 1.1377. Daily technical indicators are mixed, but probability of a setback increases. However, support zone below 1.1060 continues to guard the pair from a long-term selloff.Daily chart
Now, when the cross consolidated above the two-month downtrend line placed around 1.1180, we are estimating a leg up in the direction of the September 2015 high at 1.1459. The bears will be expected to activate selling power up there, which should calm EUR/USD back down to the 1.12-1.11 area backed by the 200-hour SMA.
Hourly chart
SWFX sentiment continues to deteriorate at a slight pace
OANDA and SAXO Bank sentiment is extending a decline at the expense of the bulls. With the former, now only 36% of all positions are betting on the Euro's advance, down from circa 40% yesterday. While SAXO Bank bullish portion is rapidly moving closer to the 30% mark.
Spreads (avg,pip) / Trading volume / Volatility
There is only a marginal bias in favour of the Euro vs Dollar this week
Despite the fact the EUR/USD currency pair has been trading in a strong uptrend on Friday, this week's traders' opinions divided almost equally (54.5% bullish vs 45.5% bearish). Dukascopy Community members see the pair closing at 1.09 this Friday, on March 18. This level is slightly below the weekly pivot point, suggesting a close behind this level will indicate further correction or even a beginning of a new trend to the downside.
On the positive side of traders' opinions, STARLINE has said that "the ECB has done a lot to encourage inflation in the Euro zone during the March meeting. Therefore, I am expecting only one existing option for the Euro– the bull direction." Such a view is disagreed by megajorko who claims that according to the 1H chart for EUR/USD "the bullish momentum has ended, but it is hard to say that selling can start." The trader added that "there is a formation of a double top, but there must be something additional to help the bears to take control. Forecast for EUR/USD is somewhat neutral and rangy."