EUR/USD awaits another impetus

Source: Dukascopy Bank SA
  • For a third day 58% of all positions are short
  • Bullish pending orders managed to rise, but they are still short of an overall majority
  • Bears keep eye on 1.12 (monthly PP; weekly S3), but 55-day SMA (1.1169) should help long traders
  • Next week's technical indicators are positive along with Friday's daily studies
  • Economic events to watch over the next 24 hours: Italian Trade Balance (Feb); US Industrial Production (Mar), Empire State Manufacturing Index (Apr) and Preliminary Consumer Confidence Index (Apr); FOMC Member Evans Speaks

© Dukascopy Bank SA
Owing to the lack of Euro zone's fundamentals on Thursday, the common currency of the bloc was driven mainly by other components that used to have at least some basis to trade on. EUR/NZD was the only currency pair to add more than 1%, as the Kiwi bounced back after major gains posted one day before. Losses were a reaction to the Reserve Bank of New Zealand's announcement that the results of the most recent monetary meeting, when RBNZ cut the base rate by 25 bps, were leaked before their official publication. EUR/GBP added 0.29%, after the Bank of England kept all monetary policy tools without changes and added there are major potential risks to the UK economy created by the forthcoming EU referendum. EUR/AUD retreated by 0.61% on the back of encouraging labour market statistics from Australia, which showed an unexpected decline in the rate of unemployment and substantial job gains in March. Other crosses of the Euro were more or less steady yesterday.

US consumer prices climbed modestly in March for the first time in four months, meaning little urgency for the Fed to hike interest rates in the months to come. According to the Labor Department, its Consumer Price Index inched up 0.1% last month as a recovery in gasoline prices was partially offset by a decline in the cost of food. While the measure rose the most since November, it came in against economists' expectations for a 0.2% gain. In the 12 months through March, the CPI increased 0.9% after rising 1.0% in February. The core CPI, which excludes food and energy costs, inched up 0.1%, the smallest since August and followed a 0.3% rise in February. A separate report showed the number of Americans filing for unemployment benefits unexpectedly fell last week to match its lowest level since 1973, in the latest sign of a strong labour market. Initial claims for jobless benefits decreased by 13,000 to a seasonally adjusted 253,000 in the week ended April 9. Jobless claims have been holding near historic lows this year and the US economy added an average of 209,000 jobs a month in the first quarter. The four-week moving average, which smooths out week-to-week volatility, dropped by 1,500 last week to 265,000. With benign inflation and wages rising moderately as the improving labour market attracts both previously discouraged and new job seekers, the US central bank is unlikely to hike rates again before the second half of the year.

The Bank of England kept interest rates on hold at 0.5% and warned that the UK's exit from the European Union would create uncertainty and likely hurt the British economy in the short term. The decision was unanimous. Former dissenter Ian McCafferty, who had insisted on a 25 basis point increase at every meeting between August and January, voted with the other eight rate setters for a third month in a row to keep the key rate unchanged. Experts are now expecting rates to stay at 0.5% until 2017, with some predicting a rate increase to come sooner if Britain votes to stay in the EU. The central bank sees GDP growth at a mature 0.5% pace in both the first and second quarter of this year. The economic outlook has deteriorated since the beginning of the year due to worries about a slowdown in China, the world's second largest economy, and as oil and commodity prices remained under pressure. At the same time, the labour market remains tight, with the unemployment rate staying at a decade-low of 5.1% in the three months through January. The BoE sees some downside risk to labour market stemming from an expected near-term slowdown in GDP. BoE policymakers expect a drop in the inflation rate in April as the Easter impact unwinds.

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Upcoming fundamentals: Italian foreign trade gap to recover in February



From Europe, today we are looking only for the foreign trade data from Italy. The Euro zone's third largest economy had registered a slim positive exports-imports gap of 40 million euros in January, even though analysts had expected a non-problematic healthy reading of 4.33 billion euros. They estimate a recovery to 2.33 billion euros in February from that lowest surplus level since January 2013. The data is due at 8:00 GMT. In the meantime, Friday is going to busy on the US fundamental front. Industrial production data for March is out at 13:15 GMT, while the preliminary survey of the University of Michigan on the matter on consumer confidence in April will be published at 14:00 GMT. Investors foresee positive readings for both of these gauges.


EUR/USD awaits another impetus

The EUR/USD pair fluctuated with no broad changes on Thursday, similar to those the same cross had posted back before Wednesday for eight consecutive days. The exchange rate is therefore currently guided by the weekly S2 at 1.1264, but the mid-term bearish focus is keeping eye on the 1.12 zone that is backed by the monthly pivot and weekly S3. Additionally, the 55-day SMA is sloping to the North near 1.1169 and will provide extra demand. Dips below here are unlikely over Friday, also because the indicators are predominantly long on the Euro.

Daily chart
© Dukascopy Bank SA

In the 1H chart the growth and stabilization looks much less likely, as the pair is expected to tumble as low as 1.1025 in the long run with no major supports on its way down. On top of that, inability to recover back beyond the 200-hour SMA and an uptrend near 1.1361 is to make the future scenario diminish even more.

Hourly chart
© Dukascopy Bank SA

Market sentiment steady for a third day

42% of all SWFX positions are bullish in the morning on Friday, no change for a third day in a row. On the other hand, pending orders set to trade the EUR/USD currency pair have finally moved in a positive direction. In both ranges of 50 and 100 pips from the current market price, the bullish commands are now accounting for 46% and 47% of them, respectively. Even though this is still pointing to a formal minority of the longs, it should be remembered that yesterday they were placed even sub-40%.

A genuinely historical moment has happened with sentiments of various currency pairs traded in the OANDA market. Particularly, EUR/USD's distribution between the bulls and bears is no longer the worst in spite of the fact that still less than 40% of all transactions are long. Now the last place is overtaken by another currency pair. As for SAXO Bank, here two thirds of all positions are short and only one third is projecting an advance of the Euro right now.










Spreads (avg,pip) / Trading volume / Volatility




Dukascopy Community members expect a rally of EUR/USD this week

© Dukascopy Bank SA

This week the sentiment among Dukascopy traders ameliorated to approach average level of several last weeks, as now 61% of them are waiting for the pair to advance from Monday to Friday. Average market expectation, however, moved slightly up to reach the 1.14 level on Friday, April 15. Moreover, 45% of all votes are set in range between 1.13 and 1.145, meaning that the pair is likely to hover around current levels for some time in the future.


One of the opinions about this week's development of the pair is provided by Besim76, who says that "EUR/USD gained to close over the 1.14 level seeing a gain of 0.13% on the week as the US Dollar continued to show weakness. The Euro may be a bit more susceptible to weakness if risk markets rally (the portfolio re-balancing channel effect is still in play). However, the sensitivity the Euro will have to gains by equity markets and lower core sovereign yields may be limited thanks to Fed Chair Yellen's heightened dovish posture."

Average forecast says EUR/USD will trade at 1.12 by July

Meanwhile, traders, who were asked regarding their longer-term views on EUR/USD between March 15 and April 15 expect, on average, to see the currency pair around 1.12 by the end of July. Though 55% (+1%) of participants believe the exchange rate will be generally below this level in ninety days, with 39% (+2%) alone seeing it below 1.08. Alongside, 27% (-1%) of those surveyed reckon the price will trade in the range between 1.12 and 1.18 on July 31.

© Dukascopy Bank SA

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