- No more large gap between the buy (54%) and sell (46%) orders
- Sentiment remains neutral
- We expect the resistance at 1.14 to send the price lower
- Accelerated rising support line is at 1.1340
- Economic events to watch in the next 24 hours: German ZEW Economic Sentiment (Oct), Euro zone ZEW Economic Sentiment (Oct)
As for the Friday's data, following a rebound in July, Italy's industrial production output slid into negative territory on a monthly basis in August. Industrial production in the Euro zone's third biggest economy declined 0.5% on the month in seasonally adjusted terms. Measured on an annual basis, Italy's industrial production climbed 1% in August, Istat reported. The International Monetary Fund predicted the Italian economy to expand 0.8% this year, with growth accelerating to 1.3% in 2016, compared to the previous forecasts of 0.7% and 1.2%, respectively.
Meanwhile, industrial production in France was much stronger in August, the INSEE reported. Measured on a monthly basis, French industrial output rose 1.6%, following a negative 1.1% reading in July. In annual terms, industrial output rose 1.6% in the reported period, compared with the revised 0.9% decline in July and analysts' expectations of a 0.2% gain. The Bank of France said that the Euro zone's second biggest economy grew less than previously estimated in the third quarter and revised to the downwards its GDP outlook. The central bank said the economy expanded 0.2% in the third quarter, lower than the previous estimate of the 0.3% growth. For the final three months of the year, the bank expects an expansion of 0.4% and 1.1% for the full year.
Sentiment in Germany to deteriorate
While Monday was not rich in events, especially the ones concerning the Euro zone, today's trading session is going to be completely different. The main event for the EUR/USD is likely to be a release of a leading indicator of German economic health, ZEW economic sentiment. According to the forecasts, investors and analysts are to stay optimistic, but less so than a month before. It is also interesting to note that for the past eight months the forecasts were above the actual figures.
Gravestone doji in EUR/USD chart
After the yesterday's session we now have an additional bearish signal, which is a gravestone doji. We expect the resistance at 1.14 to withstand the buying pressure and send the price lower. The nearest significant support is 1.13, represented by the weekly pivot point. This level, however, is unlikely to underpin the pair. EUR/USD should bottom out lower. The first potential reversal point will be the monthly PP at 1.1250, followed by the 55-day SMA at 1.12.Jean-Francois Owczarczak from Fingraphs.com is negative on EUR/USD in the long run. He thinks that "in the perspective of the strong move down late last year early this year the correction is still quite shallow, and we still believe it is only a consolidation". According to Fingraphs.com algorithms the targets below parity or just below parity could be reached in the next few quarters. As for the short term, however, Jean-Francois is bullish, and expects the currency pair to reach 1.15, possibly even 1.16, before the correction is over.
Daily chart
The Euro started Tuesday on a strong footing - the rate is already 55 pips higher than yesterday's close, but the deciding factor will be published at 9 am GMT. Then we will look for which of the key levels is going to give in first. Either this will be the September high at 1.1460 or the accelerated rising support line at 1.1340. Our bias is to the downside.
Hourly chart
SWFX traders undecided; elsewhere sentiment bearish
The advantage of the bears is much more prominent at OANDA and SAXO Bank. In the first case, 62% of traders expect the Euro to underperform. In the second, as much as 69% of market participants are currently holding short positions.