- Bullish portion is up by only one percentage point to 39%
- Pending orders joined the declining sentiment, by falling below 50% for the first time in five days
- Janet Yellen to hold a semi-annual testimony in Congress, as market volatility expected
- Notwithstanding EUR/USD's rally, daily technical indicators are now looking for more growth
- Economic events to watch over the next 24 hours: French Industrial Production (Dec); Italian Industrial Production (Dec); Fed Chair Yellen Testifies; US Crude Oil Inventories (Feb 5) and Monthly Budget Statement (Jan)
German industrial production unexpectedly dropped for a second consecutive month in December, while exports and imports also declined, indicating that the Euro zone's number one economy ended last year on a weak footing. German industrial production fell 1.2% in December from the preceding month, a sign that the German economy is feeling the effects of a deteriorating global outlook. The retreat came at a time when record-low jobless rate and low fuel costs encouraged consumer spending, but slowing growth in China and emerging economies are offsetting those positive trends. Separate report from the Federal Statistics Office showed that seasonally-adjusted exports dropped 1.6% in December, while imports declined 1.6%, narrowing the nation's trade surplus to 18.8 billion euros. For 2015, Germany logged a new record trade surplus of 247.8 billion euros, up from 213.6 billion euros in the preceding year. The German government trimmed its economic growth outlook for 2016 to 1.7% in January, down from an earlier estimate of 1.8%. Moreover, a slowdown in global demand might trigger another revision. However, strong domestic consumption is expected to drive the Europe's biggest economy this year.
Australia's business confidence held up in light of the ongoing turmoil on financial markets around the world. According to NAB's monthly business survey, business confidence remained unchanged at 2 last month, with the measure being choppy last year, partly due to volatility on money markets and concerns about China's economic growth. However, business conditions deteriorated, with the corresponding gauge falling to 5 in January from a revised 6 in the prior month, but the measure remained comfortably above its long-term average of 1. While low interest rates continues to support the domestic economy in a period of transition away from a commodities boom, general business sentiment has also improved since Prime Minister Malcolm Turnbull assumed the leadership last September. At the same time, Australian consumer confidence rebounded this month, a sign domestic demand will continue to shore up the economy this year. The Westpac Consumer Sentiment Index soared 4.2% from 97.3 last month to 101.3 in February, the highest reading since November. The report also showed that that people's assessment of their family finances over the next year was also strong, up by 3.8% for the month. Low inflation and interest rates are likely to contribute to improvement of consumer moods.
Upcoming fundamentals: Fed chief Yellen to start testifying before Congress
Twice a year the Federal Reserve head testifies before both houses of the Congress. The event is called the Humphrey-Hawkins testimony, where the Chair is presenting a semi-annual monetary policy report. Today Janet Yellen will speak to the House Financial Services Committee at 15:00 GMT, while lawmakers will be allowed to ask questions. Markets are considering this economic event as the first important this week, given that Janet Yellen is likely to build some ground concerning the rate increase in March. The futures market allocates only a 10% probability to the hike next month due to the continuous instability in global equity and commodity markets. Nonetheless, Chair Yellen may also not completely rule out the possibility of the rate increase, by saying that the Fed is closely monitoring everything that is happening globally and locally with the economy.
EUR/USD breaches 1.1250, sets eye on 1.1330
Continuous worries about global economy helped the Euro in gaining more strength on Tuesday. EUR/USD penetrated the last monthly resistance line (monthly R3) at 1.1246 and closed the daily session near 1.13. Now the focus turns to the first weekly supply at 1.1330, which is guarded by the upper Bollinger band at 1.1347. A rally above here will imply extra optimistic sentiment, while core attention will then switch to the September 2015 high at 1.1460. Meanwhile, the move up is backed by aggregate daily technical indicators.Daily chart
The current development of EUR/USD in the one-hour chart suggests that the cross is heading in the direction of 1.1450, where it is going to meet the aforementioned September 2015 high. There the pair will also encounter the bullish pattern's upper boundary, which is likely to cause a correction back to the 1.1250 area.
Hourly chart
Pending orders on EUR/USD are back to red
Expectations on the matter are broadly steady on both OANDA and SAXO Bank markets. With OANDA, the EUR/USD cross is holding the worst bullish-bearish gap for several days in a row, as the bulls are accounting for only 38.29% of the entire market. Alongside, SAXO Bank clients are shorting the Euro in 68.65% of all deals.
Spreads (avg,pip) / Trading volume / Volatility
Dukascopy Community members are bullish on the Euro in 71% of all cases
The odds are growing in favour of the EUR/USD pair's continuous advance this week. Now almost three out of four Community members see the cross higher by Friday, while the mean projection breaches the round level of 1.12. Adding to that, more than 72% of all estimates are falling into the range between 1.10 and 1.1450, meaning there is a high probability of uplifted volatility and wide-range trading.
As for some specific forecasts among traders, khalidamassi says that "EUR/USD seems to have finally waked up after breaking the range of the last three months. Until now the depth of a recovery is not known due to the expected ECB rate cut next March, but 1.1500 is on the way." On the other hand, rokasltu claims that "EUR/USD skyrocketed last week. But, taking into account possible actions from the ECB to boost inflation, in my opinion pair will gradually move down."