EUR/USD set to attack 1.1320 for second time

Source: Dukascopy Bank SA
  • SWFX sentiment remains overwhelmingly bearish (59%)
  • Pending orders are set to acquire the Euro in >50% of all cases for a fifth consecutive day
  • Second testing of 1.1320 is forecasted for the near-term, but failure will diminish any recovery hopes
  • Aggregate daily technical studies are mixed; RSI separately assumes EUR/USD is overbought
  • Economic events to watch over the next 24 hours: Euro zone Current Account (Jan); FOMC Members Lacker and Lockhart Speak; US Existing Homes Sales (Feb)

© Dukascopy Bank SA
Commodity prices have decreased gradually on Friday, but even a small change there put some downside pressure on Kiwi and Aussie that were the only currencies to lose value against the Euro. EUR/NZD and EUR/AUD have therefore added 32 and 16 basis points, respectively, over the 24-hour period ended Friday evening. Other crosses of the Euro were subjects to retreats that ranged from 0.22% for EUR/CAD and 0.42% for EUR/USD. Canadian currency appreciated on the back of better than forecasted retail sales in Canada in January and notwithstanding softer inflation numbers for February. In the meantime, St. Louis Fed President James Bullard indicated that low interest rates are probably causing lower inflation, although he noted that this argument should be analyzed further. His hawkish comments are one of the reasons of the Dollar's rally on March 18.

Consumer confidence in New Zealand worsened in the first quarter, as continuous drops in dairy prices and volatility in global markets weighed on sentiment. The Westpac-McDermott Miller consumer confidence index slid to 109.6 from 110.7 in the previous quarter. Consumer moods on current economic conditions were largely flat this quarter, but sentiment about future conditions declined. While consumer spending has been strong over the last year, economists are worried that the full impact of the dairy slowdown is yet to be felt. Earlier this month the Reserve Bank of New Zealand slashed the official cash rate to a record-low 2.25% as dairy prices were continuing to fall and it seemed longer for inflation to reach the central bank's 1-3% target range. Most economists expect the RBNZ to cut the interest rates once more this year, following up its surprise cut to a record-low 2.25% with another by June. However, ASB's economist team is now predicting two more OCR cuts this year, forecasting that the RBNZ will not meet its inflation target otherwise as the effect of the RBNZ's cut earlier this month has not been fully passed on to borrowers and the New Zealand Dollar has since appreciated.

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.

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Upcoming fundamentals: European focus is on second part of the week



The only European fundamental data release on Monday will be about the January current account balance in the Euro zone. It is released at 9:00 GMT later today. In the meantime, traders of the Euro are going to closely monitor developments with statistics in the single currency area on March 22-25. On Tuesday the German ZEW economic sentiment is out, while second part of the week will be the period for PMI indicators published in many different countries.


EUR/USD set to attack 1.1320 for second time

The bulls failed at the multi-month downtrend line (1.1320) on Friday and were thereby forced to commence a correction to the 1.1260 area. The first major support for this week is placed some 40 pips lower between 1.1223 and 1.1227 where the weekly pivot point coincides with the monthly R1. Given mixed aggregate daily technical indicators and bullish weekly ones, we foresee no immediate violation of this zone. Rather opposite, the market should give a chance to test 1.1320 once again, but another setback will put any potential recovery at risk.

Daily chart
© Dukascopy Bank SA

In spite of actions taking place on the daily chart for EUR/USD, this currency pair's outlook remains quite bullish from the point of view of the hourly chart. Here we have got a reliable demand placed at 1.1160/40, while the core focus is on the upward-sloping short-term line of trend around 1.14.

Hourly chart
© Dukascopy Bank SA

No big changes for market sentiment and pending orders during weekend

It seems to be the first time ever when pending commands have remained completely flat over the long 72-hour period of time this weekend. It means that both 50 and 100-pip orders are still set to acquire the Euro is exactly 52% of all cases, no shift from Friday. As for the distribution between long and short positions already opened in the SWFX market, here the latter (59%) substantially outpace the former (41%).

About 63% of all OANDA positions on the EUR/USD cross are betting the common European currency is going to retreat versus the Buck. As for SAXO Bank, here the shorts' advantage is even wider at 68.37% against the 31.63% share for the bullish side.












Spreads (avg,pip) / Trading volume / Volatility



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

Meanwhile, traders, who were asked regarding their longer-term views on EUR/USD between Feb 21 and Mar 21 expect, on average, to see the currency pair around 1.11 by the end of June. Though 58% of participants believe the exchange rate will be generally below 1.12 in ninety days, with 39% alone seeing it below 1.08. Alongside, 24% of those surveyed reckon the price will trade in the range between 1.12 and 1.18 on June 30.

© Dukascopy Bank SA

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