EUR/USD to near 200-day SMA at 1.1097

Source: Dukascopy Bank SA
  • SWFX market sentiment is 51% bullish
  • Pending commands are mostly placed to sell the Euro
  • The closest support is 200-day SMA at 1.1097; a drop below here would furthermore diminish the outlook
  • Aggregate daily technical indicator bets EUR/USD will fall down
  • Economic events to watch over the next 24 hours: French GDP (Q1); Swedish GDP (Q1); German CPI (May)

© Dukascopy Bank SA
Markets were almost completely US-biased on Friday, while absence of European fundamentals dragged the single currency down against all of its counterparts. EUR/USD plunged the most by 0.71% amid upward-revised GDP data from America and speech given by Fed Chair Janet Yellen later Friday evening. The world's largest economy added 0.8% in the first three months of this year, up from 0.5% anticipated before, but short of a 0.9% estimate. As for the Chairwoman of the Federal Reserve, Janet Yellen said a rate hike would be appropriate in the months to come and at one of the next FOMC meetings. Her remarks boosted the case for June and July moves up to 28% and 61%, respectively. In the meantime, other currency pairs of the Euro decreased in the range of 0.16-0.39%.

The Bureau of Statistics business indicators data for the March quarter, showed a mixed outcome. The bad news was an unexpected slump in gross operating profits at Australian firms. After seasonal adjustments, profits dropped by 4.7% to $59.295 billion between January to March compared to the prior quarter, a figure that was well below expectations for an increase of 0.2%. The slump left gross operating profits down 8.4% on the same quarter a year earlier. It was the largest year-on-year decline registered since 2012, and was also the lowest quarterly figure since Q1 of 2010. Most of the slump in profits was due to three industries - mining, manufacturing and financial/insurance services. Mining profits slumped 9.6%, manufacturing 14.5%, and financial and insurance services saw gross operating profits collapse by 69.4%. This slide in corporate fortunes was partly offset by a surprise rise in wages and salaries, which rose 0.6% in the March quarter. The other boost to Wednesday's GDP number was an unexpected 0.4% rise in inventories, which were expected to stay flat. While this should add around a percentage point to GDP in the first quarter, this boost is likely to be unwound in coming quarters as these inventories are sold down. Overall, most economists are leaving their GDP forecasts unchanged for now.

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.

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Upcoming fundamentals: Focus on Europe as US markers are closed



While the US trading session is likely to be light in the run up to the Memorial Day's Bank Holiday, the focus will completely turn to either European or Asian markets. French economic growth data is first up at 6:45 GMT and Swedish GDP figures will follow at 7:30 GMT. In the meantime, Germany's inflation gauge is forecasted to turn positive in May on a monthly basis. Moreover, annual CPI in the Euro zone's largest economy will probably rebound back into the positive territory and reach 0.1%, up from -0.1% in April.


EUR/USD to near 200-day SMA at 1.1097

Daily chart: Upward-revised US statistics and hawkish Fed Chair Yellen sent the EUR/USD cross down by nearly 82 pips to 1.1111, the lowest marker since mid-March. We foresee more losses on the Euro's side amid Fed hike expectations. Now the 200-day SMA at 1.1097 is at the serious risk of being penetrated. If successful, the bears will considerably strengthen their dominance in the market. The second daily demand is represented by the weekly S1 at 1.1067, while from the upside the cap is provided by the weekly pivot at 1.1155, followed by the 100-day SMA at 1.1171.

Daily chart
© Dukascopy Bank SA

Hourly chart: EUR/USD may recover over the next 24 hours, if the bulls manage to get sufficient momentum offered by the May 19-24 short-term downtrend. Otherwise, however, the base scenario will imply a shallow slump to the March 16 low at 1.1057 with the long run target placed as low as 1.0821 (March low).

Hourly chart
© Dukascopy Bank SA

SWFX sentiment remains Euro-positive

For the first time in precisely 12 weeks the total percentage of bullish open positions advanced above the number of bearish transactions. However, the difference between them is only two percentage points for a second trading day in a row. From the side of pending orders the majority is still held by those traders who are betting the Euro will diminish against the Dollar. Their portion amounts to 56% in the 100-pip range from the current spot price.

Sentiment among OANDA clients has also become slightly bullish over the past 72 hours including the weekend, where the percentage of long transactions has risen to 50.36%. Despite that, SAXO Bank traders remain negative in the vast majority (57.43%) of all cases.













Spreads (avg,pip) / Trading volume / Volatility



Average forecast says EUR/USD will trade at 1.13 by August

Meanwhile, traders, who were asked regarding their longer-term views on EUR/USD between April 30 and May 30 expect, on average, to see the currency pair around 1.13 by the end of August. Though 55% of participants believe the exchange rate will be generally below 1.14 in ninety days, with 42% alone seeing it below 1.10. Alongside, 24% of those surveyed reckon the price will trade in the range between 1.14 and 1.20 on August 31.

© Dukascopy Bank SA

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