- There are 7 percentage point more bears than there are bulls
- Near-term rallies are to be capped by 1.1360
- Lower bound of the three-day channel is at 1.1320
- Economic events to watch over the next 24 hours: UK Referendum
After a rather poor reading of the German ZEW Economic Sentiment last month, caused by the upcoming EU referendum in the UK, the latest data came out rather strong at 19.2, up from 6.4 in May. With the investor sentiment being back on track financial market experts now have more confidence in the strength of the German economy. However, the EU referendum in the UK remains a great deal and a challenge. With all the ‘Brexit' turmoil, such as strong reading is definitely a positive surprise. In case of the ‘Brexit' Germany's economic growth would experience a severe setback, as the British country remains an important trading partner for Germany. As a result, the next GDP data figures could worsen dramatically, also meaning rising concerns for the Eurozone overall. In the meantime, ECB's president Mario Draghi stated on Tuesday, that the ECB is ready for such an undesired event, as a ‘Brexit'. He said that the European central bank is ready to take measures in order to stabilise the market turbulence should UK citizens decide to leave the EU. Moreover, Mario Draghi stated that the EU's economic recovery is expected to continue at a moderate rate, but at a steady one. However, he did note that there currently are issues concerning the inflation growth, but growth could have been significantly lower if not for the ECB's actions.
On Tuesday the head of the Federal Reserve, Janet Yellen, stated that there is ‘considerable uncertainty' in US growth outlook. She also brought to attention the fact that some data suggests the US economy keeps growing, but some events, like the upcoming ‘Brexit' referendum, bring the mentioned uncertainty. According to Yellen, the US economy is expected to reach full employment and its 2% inflation target within the next few years. Growing household incomes, improvements in the housing industry, along with low mortgage rates, should trigger improvements in the labour market to appear and, therefore, in the economy overall. Furthermore, Janet Yellen touched the question of the interest rates, explaining that the FOMC has been hesitant to do so due to periodicallydisappointing readings in the labour market, as well as inflation remaining below its key target. Also, she assured that some weakness in the labour market should not be considered as a game changer in the Fed's monetary policy decision, as there were strong readings present too. Finally, she warned about foreign risks, such as the slowdown in global economy, lower inflation and interest rates may cause investor risk appetite to arise. Amid these issues and concerns, the US monetary policy is not heading in only one direction, as adjustments must be made.
Euro is highly exposed to 'Brexit' risks
Similarly to all GBP crosses, all the currency pairs with the European currency are currently exposed to significant risks, which are likely to manifest themselves with wide spreads and high liquidity - an explosive combination. Today's main fundamentals have already been released, and all the focus is now on the UK referendum. According to Markit, growth in the manufacturing sector of the bloc exceeded expectations, while expansion of the services sector slowed down for a third month in a row.
EUR/USD remains bullish; faces down-trend at 1.1340
Considering that both in May and in June EUR/USD confirmed the lower bound of the eight-month ascending channel, our multi-week outlook is bullish. The target is the August 2015 high. However, the pair is currently facing a recently established falling resistance line at 1.1340, which is likely to delay the recovery of the Euro. Nevertheless, the technical indicators are mostly pointing upwards, and there are plenty of supports, including the 100 and 200-day SMAs at 1.1240 and at 1.11 respectively, that should support the price.Daily chart
The hourly chart suggests that EUR/USD is unlikely to keep moving higher within the recently established channel. The exchange rate is about to hit a falling resistance line, which could mean a soon sell-off back down to the 200-hour SMA at 1.1270.
Hourly chart
Traders are slightly bearish
A very much similar situation is observed with positioning of traders at different brokers. For example, 41% of OANDA traders are currently long, meaning the sentiment is also neutral, but bordering on becoming bearish. SAXO Bank clients turned out to be the most pessimistic with respect to the Euro - at the moment, only 39% of them are holding long positions.
Spreads (avg,pip) / Trading volume / Volatility
Average forecast says EUR/USD will trade at 1.12 by August
Meanwhile, traders, who were asked regarding their longer-term views on EUR/USD between May 22 and June 22 expect, on average, the currency pair around 1.12 by the end of August. Though 44% of participants believe the exchange rate will be generally below 1.12 in ninety days, with 27% alone seeing it below 1.08. Alongside, only 28% of those surveyed reckon the price will trade in the range between 1.12 and 1.18 on August 31.Dukascopy Community members are bullish on this week's perspectives of EUR/USD
75% of the Dukascopy Community members are expecting a surge in the value of the Euro against the Greenback by the end of this working week. The median estimate for June 24 stands slightly at 1.13. Among traders, rokasltu states that "In my opinion currency rates this week will depend on Brexit outcome. I think that probability of UK staying in EU is relatively high thus, in my opinion the EUR/USD will go upwards by few hundred pips".
At the same time, trader Khimitau is bearish stating that "The pair is running on a range interval 1,11060 - 1,141790 in the last 30 days with the EMA(20) on average in that interval. In the last days a Bearish movement has emerged and I expect a pull back to the EMA(20) around 1,2700".