- SWFX market sentiment is 51% bullish
- Pending commands are mostly placed to sell the Euro
- Growth beyond 1.1220 is unlikely, as there EUR/USD will face a sharp May downtrend
- None of daily technical indicators are pointing to the upside today; aggregate signal is negative
- Economic events to watch over the next 24 hours: Spanish Retail Sales (Apr); Swedish Retail Sales (Apr); US Prelim GDP (Q1), Consumer Confidence Index (May); Fed Chair Yellen Speaks
In April, domestic manufacturers were negatively affected by weak news, though some recently published mixed industrial reports. According to the Commerce Department, orders for durable goods, items ranging from phones to aircraft, surged 3.4% after an upwardly revised 1.9% advance in March. Previously reported durable goods, for March posted a 1.3% increase in March. Strong demand for long-lasting US manufactured goods advanced in April due to orders from transportation sector, namely commercial planes. These orders accounted for 85% of the increase in April bookings. Typically large planes are built or delivered in five years after they are ordered. Nevertheless, companies have been reluctant to invest more heavily because of a tepid global economy and falling exports. The number of Americans applied for unemployment benefits last week dropped more than expected last week, moving back to near cycle lows as the labor markets remain healthy and the economy regains momentum after stumbling in the first quarter. According to the Labour Department, weekly applications for unemployment aid plunged 10,000 to a seasonally adjusted 268,000 for the week ended May 21. Sustained decrease in claims from the one-year peak address was spurred by transitory events such as the spring break holiday at schools as well as auto plant shutdowns in Michigan.
German business confidence improved more than expected in May, hitting its highest level in five months, and supporting optimism that Euro zone's biggest economy will extend its surprisingly strong start to the year into the second quarter. The German research institute report showed that Business Climate Index picked up to a seasonally adjusted 107.7 this month from a revised 106.6 in April, exceeding forecasts for 106.8. Thus, combined with the stronger PMI numbers, the Ifo provides an upbeat picture of the economic development of Germany. Meanwhile, a separate report showed that the Current Assessment Index rose to 114.2 in May from 113.2 in previous month, beating expectations for 113.2. In addition, the Business Expectations Index that measures attitudes toward business prospects over the next six months, increased to 106.6 this month from 100.4 a month earlier, surpassing expectations for 100.8. The German economy expanded by 0.7% in the first three months of 2016, indicating its strongest quarterly growth rate in two years, driven mainly by soaring private consumption and higher construction investment. Though, analysts expected the economy to lose steam over the summer months, the Ifo index for May suggested that any slowdown could be very limited.
Upcoming fundamentals: US Q1 GDP is up for first revision
At 12:30 GMT the FX market is expected to be volatile, given that the US will release an important piece of fundamental data. The country's economic growth in the first quarter will be revised, and economists expect that it will reveal the world's biggest economy grew 0.9% in January-March. This is going to be up from 0.5% anticipated during the first publication. At the same time, the personal consumption expenditures index (PCE) will be out, where analysts foresee a growth to 2.1% in Q1 from 1.9% in Q4 2015, calculated on a headline basis. This is a Fed-preferred reading of inflation and its increase may further raise bets for a rate hike next month.
EUR/USD to face renewed bearish burden
Daily chart: In spite of growing back above the 100-day SMA on Thursday, the EUR/USD pair will likely fail again on the last trading day of this week. By advancing towards the 1.12 marker, the bulls have pushed the exchange rate close to a steep downtrend resistance where a sell-off should commence, according to the majority of daily technical indicators. The bears should attempt to retake the moving average, currently located at 1.1169. However, in case the longs succeed in rising at least beyond 1.1220, then the base case would assume a spike towards the weekly pivot at 1.1250.Daily chart
Hourly chart: Although the EUR/USD cross surged above the mid-May downtrend on Thursday, a continuous advance is not on the table yet. For the moment we see the biggest downside risk represented by the falling 200-hour SMA along with the April low at 1.1215/16. A change to the 1H outlook will be possible, if EUR/USD manages to consolidate above this supply any time soon.
Hourly chart
SWFX sentiment finally turns positive
However, sentiment of both OANDA and SAXO Bank marketplaces is still bearish towards the researched currency pair. OANDA clients are 51.2% negative today, as are about 61% of SAXO Bank market participants.
Spreads (avg,pip) / Trading volume / Volatility
Dukascopy Community members are bearish on this week's perspectives of EUR/USD
60% of the Dukascopy Community members are expecting a decline in the value of the Euro against the Greenback by the end of this working week. The median estimate for May 27 stands at the level of 1.124. Among traders, megajorko suggests that "EUR/USD has broken a lot of support lines recently but the main still stays - 1.116-1.118. This was the start of the rise when Janet Yellen announced no rate hike and now the new information about the hawkish fed turns the pair more bearish. Without any bullish momentum, I think, my target from the year start of 1.1111 will be end of weekly/monthly target".
At the same time, trader Pisakjanos expects "stagnation in the vicinity of the support, with large oscillations."