EUR/USD expects heavier momentum triggers

Source: Dukascopy Bank SA
  • 57% of all SWFX market positions are short
  • Pending commands are at their most bearish level in four months (64-69%)
  • Bears to focus on monthly S1/20-day SMA at 1.1288/78, while bulls set eye on 1.1346 (weekly PP)
  • Daily technical indicators turned positive for the first time since last Thursday
  • Economic events to watch over the next 24 hours: Swiss PPI (Apr); Italian Trade Balance (Mar); US CPI (Apr), Housing Starts (Apr), Building Permits (Apr) and Industrial Production (Apr); FOMC Members Williams, Lockhart and Kaplan Speak

© Dukascopy Bank SA
Potential intervention of the Bank of Japan has negatively weighed on the national currency of this country. Speculations sent the Yen down by 0.46% against the Euro. Growing equity markets, due to rising risk-on sentiment, pushed the safe haven Swiss Franc lower versus the common European currency. EUR/CHF was the second strongest gainer on Monday with an increase of 0.38%. EUR/USD added 11 basis points, following disappointing statistical data releases from America. Monday was a poor day in terms of incoming data, but the only releases in place, including the Empire State Manufacturing Index and the sentiment indicator for US housebuilders, shower a deceleration in May. Meanwhile, oil futures continued to become more expensive and generated a positive momentum for classical commodity-dependent currencies. However, growth has not exceeded 0.25% with the Canadian Dollar spiking the most.

Reserve Bank of Australia policy makers discussed keeping interest rates on hold at the May 3 meeting so they could await more information, but decided on balance that a cut then would help bring inflation to target over time. A "broad-based" cooling of inflation pressures persuaded the central bank that the economy would be supported by an interest-rate cut even as the growth outlook remained steady. RBA board members decided to cut the official cash rate by a quarter point to 1.75%, according to the minutes of its latest policy meeting. Governor Glenn Stevens's first interest-rate cut in a year came after a report last month showed that some of the ill disinflationary winds blowing in economies from Japan to Europe have reached Australia. The consumer price index fell for the first time since 2008 in the first quarter, while annual core growth eased to the weakest on record, prompting the central bank to revise its inflation outlook. Yet, the RBA noted there had been no material change in its forecast for growth and was still of the view that the economy continued to rebalance away from the mining sector, backed up by 'very accommodative' monetary policy and a lower exchange rate since 2013. Despite the RBA's reluctance to ease monetary policy, before the minutes' release, futures markets had priced in the chances of another cut, to 1.5%, for the August meeting at 80%, and the possibility of September cut at 92%.

Quarterly GDP growth showed a positive trend in the Euro area, rising above previous quarter levels even after a downward revision. Euro zone's seasonally adjusted GDP showed a 0.5% gain, topping the 0.3% advance in the final quarter of 2015, but falling short of analyst expectations, who estimated no change in the measure after revision. The yearly GDP growth was revised slightly down as well, as it displayed a 1.5% improvement, repeatedly causing analyst disappointment. While almost all of the countries in the Euro zone experienced higher growth, with the exception of Latvia and Greece, Germany led the way with an immense improvement in economic performance, as its quarterly GDP expanded by 0.7%, compared to a previous 0.3%. Other large Euro zone economies showed a strong positive trend in their quarterly GDP as well, with France advancing 0.5%, the Italian economy expanding by 0.3% and Spain staying steady at 0.8% growth. Discussion on political uncertainty has, however, fuelled doubts over the sustainability of Spain's future growth estimates. A separate report showed Germany's inflation rate slipped into negative territory in April, with the CPI gauge falling 0.1% year-on-year, compared with the preliminary estimate of the 0.1% increase.

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Upcoming fundamentals: US inflation to grow in April



A fresh update on consumer prices in the world's largest economy is likely to reveal growing inflation pressures. A monthly change of the headline CPI is anticipated at 0.4% in April, up from 0.1% in the previous month. Annual reading is expected to pick up to 1%, while the core yearly inflation is likely to stay flat at 2.2%. In addition to this data release due at 12:30 GMT, building permits and housing starts in April are set to rebound after a massive drop in March. The last piece of today's US hard data will be out at 13:15 GMT when the Fed releases industrial production figures for April. Output is estimated to advance by 0.3% last month and may therefore partly erase a 0.6% drop from March.


EUR/USD expects heavier momentum triggers

Yesterday EUR/USD regained only a tiny percentage of Friday's losses, as data-free trading session ended with no distinctive leadership of either bulls or bears. As for the first daily resistance line, we are still looking at the weekly pivot point placed at 1.1346, followed by the 20-day SMA 14 pips higher. The bearish challenge is circled around the monthly S1 along with the 55-day SMA that are guarding the ten-pip zone at 1.1288/78. If it is breached today, then the pair will try to lunge at the first weekly demand at 1.1246. However, daily technical indicators have resumed pointing to the upside today.

Daily chart
© Dukascopy Bank SA

In the 1H chart the pair is attempting to avoid a slide under the two-month uptrend line, thereby raising hopes for a recovery. On the other hand, it will be pressured down by the 200-hour SMA, which is gradually falling down, currently near 1.1384. A climb above it would reassure us that the Euro is confident enough to expand the rally until the October 2015 high at 1.1495. However, any failure may result in a sell-off down to the April low at 1.1215.

Hourly chart
© Dukascopy Bank SA

Pending orders continue retreating, sentiment steady

Since early Monday morning the percentage of bullish and bearish SWFX market positions has been literally flat, as traders are awaiting more pronounced movements and signals to trigger some buying or selling of the EUR/USD pair. The scales are still tipped in favour of the shorts (57%) who are dominating over their bullish peers (43%). On the other hand, pending orders continued to dive significantly and the bulls have lost about ten additional percentage points off their overall share. Now only 31% and 36% of commands in 50 and 100-pip ranges, respectively, see the Euro higher against the US Dollar. This is the smallest number in around four months.

Sentiment of both OANDA and SAXO Bank marketplaces is also bearish towards the researched currency pair. OANDA clients are 55% (57% yesterday) negative today, while about 64.7% (63.8% on May 16) of SAXO Bank positions are maintaining the short bias.













Spreads (avg,pip) / Trading volume / Volatility




Average forecast says EUR/USD will trade above 1.12 by August

Meanwhile, traders, who were asked regarding their longer-term views on EUR/USD between April 17 and May 17 expect, on average, to see the currency pair marginally above 1.12 by the end of August. Though 55% of participants believe the exchange rate will be generally below this round level in ninety days, with 37% alone seeing it below 1.08. Alongside, 21% of those surveyed reckon the price will trade in the range between 1.12 and 1.16 on August 31.

© Dukascopy Bank SA

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