- Market sentiment is the least negative in four weeks, as only 56% of all positions are short today
- Pair is facing its closest resistance near 1.1280, precisely the 20-day SMA and weekly PP
- Broad support is coming from 1.12, the area where both monthly PP and 55-day SMA rest today
- Daily technical indicators are mixed, as they are looking forward to seeing more pronounced movements of the pair
- Economic events to watch over the next 24 hours: Swedish Unemployment Rate (Mar); German IFO Business Climate (Apr); US New Home Sales (Mar)
The Euro zone's private sector kept expanding moderately in April, but failed to gather momentum. The Markit Composite PMI, a forward-looking reading tracking development in the Euro bloc's manufacturing and services sectors came in at 53.0 in the reported month, down from 53.1 seen previously, when it rebounded from February's 13-month low. The manufacturing PMI declined to 51.5 in April, compared with 51.6 in the preceding month, while the services sector gauge rose to 53.2, slightly ahead of 53.1 in March, but undershooting economists' expectations of 53.3. The Euro zone's economic growth continued to be weak as the bloc's GDP expanded 0.3% in the final three months of 2015 on a quarterly basis, the same pace as in the three months through September. For all of 2015, economic output of the 19 countries using the Euro was up by 1.6% year-on-year. Business activity in Germany, the Euro zone's number one economy, decelerated more than expected in April. Markit's Composite PMI for Germany dropped to 53.8, down from 54.0 in March, which was the lowest level since September 2015. Economists, however, had expected acceleration to 54.2 in the reported month. Germany's manufacturing gauge climbed to 51.9, up from 50.7 in March, while the services PMI unexpectedly dropped to 54.6, down from 55.1.
Activity in the US manufacturing sector unexpectedly declined in April, showing it's weakest upturn since September 2009. Markit said that its flash manufacturing PMI for April fell to 50.8, the lowest level since September 2009, from the previous month's final reading of 51.5, missing expectations for a gain to 52.0. Softer output and new business growth along with a weaker increase in employment were the main factors weighing on the index. The US manufacturing sector had been undermined by the strong Dollar, sluggish global growth and excess supply. The data extend a streak of increasingly disappointing fundamentals that have prompted Wall Street analysts to sharply lower their expectations for GDP growth early this year. Few expect the economy to grow even as little as 1% after an already disappointing end to 2015. Fed policy makers are expected to keep interest rates steady when they meet this week, but may tweak their description of the economic outlook to reflect more benign conditions, leaving the door open for future rate rises. Though the economy is creating jobs and consumer prices have climbed, providing support for a Fed interest rate hike, weakness in retail sales and international trade, as well as concern about China's economy, are among reasons Fed Chair Janet Yellen will remain cautious about further rate hikes before the second half of the year.
Upcoming fundamentals: Weekly focus on Fed and BoJ
The week ahead is going to be influenced by North American news, as the economic calendar in Europe will likely remain quite empty. Today the German IFO Business Climate is up at 8:00 GMT, with expectations for business sentiment and current assessment both tilted to the upside. Analysts foresee the business climate April index at 107.1 points, up from 106.7 in March. As for future expectations among 7,000 German firms, this particular indicator is anticipated to show the reading of 100.9 points this month, up from 100 in the previous month. Market participants are additionally focusing on major events that are going to take place later in the week, including meeting of the Federal Reserve on Wednesday and the Bank of Japan on Thursday. Generally, US sessions should be much more active in terms of volatility over the whole April 25-29 period.
EUR/USD at 4-week low, supported by 1.1220
Last Friday the EUR/USD pair traded down and closed at the 1.1220 mark, posting a more than 60-pip daily slump. Short-term upward correction seems very possible, as the exchange rate has neared the bunch of supports around 1.12, namely the monthly pivot point and 55-day SMA. They are followed by the lower Bollinger band and weekly S1 at 1.1173 and 1.1161, respectively. Intraday dips below here would put at risk the area around 1.1065 (200/100-day SMAs). Meanwhile, on the topside the closest resistance is the weekly pivot and 20-day SMA at 1.1279/88.Daily chart
There is little ground existing for recovery hopes, based on the 1H chart for the EUR/USD currency pair. Bullish expectations are distorted by the fact that the spot is now testing the April 14 low of 1.1233. Moreover, the 200-hour SMA (1.13) is providing additional pressure to the downside. If we see no attempts of revival over Monday, then the focus will turn to the March 24 low of 1.1143.
Hourly chart
SWFX sentiment on EUR at 4-week high
The market share of OANDA bulls has soared by more than four percentage points since the time of our previous report back on Friday, reaching the 42.16% level by Monday morning. Moreover, SAXO Bank clients turned somewhat less bearish on the pair and curbed their bearish portion down to about 65% from more than 70% on April 22.