- SWFX sentiment remains Euro-negative (55%)
- Pending orders are volatile and fluctuate around 50% from day to day
- US inflation data to have the last say today, before the Fed rate decision tomorrow
- Daily technical indicators are looking up one day before FOMC
- Economic events to watch in the next 24 hours: Spanish CPI (Nov); German ZEW Economic Sentiment (Dec); US CPI (Nov) and Empire State Manufacturing Index (Dec)
Euro zone industrial production recovered in October following two months of declines. The output of factories, mines and utilities across the 19-country currency bloc rose 0.6% in the reported month after the 0.3% decrease in September. Measured on an annual basis, industrial production increased 1.9%, up from the 1.3% rise in September. The fastest annual growth was reported in Ireland where production surged 14.6%. It also climbed at healthy rates in France, Spain and Italy, but dropped 0.1% in Germany, the Eurozone's star economy. Euro zone GDP data last week showed the region's economy grew 0.3% in the third quarter following a 0.4% expansion in the June quarter. On an annual basis, the combined gross domestic product of the 19 countries that use the Euro increased 1.6%. In order to underpin growth and inflation, the European Central bank announced additional stimulus measures, while ECB President Mario Draghi cited developments in the global economy as major headwinds that may prompt a further expansion of a bond-buying programme that was introduced in March. Nevertheless, the central bank raised its GDP growth outlook for this year, with the Euro area's economy expected to expand 1.5%.
Minouche Shafik, Bank of England Deputy Governor, said she would not vote for an interest rate hike if there is no evidence of sustained growth in wages. After Shafik said she would "proceed with caution" when considering to wean the British economy off the crisis-era level of interest rates, the Pound dropped versus all of its 16 major counterparts, halting its two weeks of rally against the US Dollar. The UK currency also came under pressure as crude oil in New York fell below $35 per barrel for the first time since 2009. The Monetary Policy Committee said last week that low oil prices and sluggish wage gains are raising risk that price growth will take longer to pick up than they currently estimate. A report later in the day is expected to show the UK inflation was just 0.1% in November, far below the central bank's 2%. Shafik said that she expected the recent strength of Sterling to act as a drag on inflation for some time to come. The BoE's nine-member MPC voted 8-1 to maintain borrowing costs at record low of 0.5% last week. Investors believe the central bank would refrain from hiking interest rates until late 2016 or early 2017 and will have raised it to only 1% in around two-year time. BoE officials led by Governor Mark Carney signalled that an interest-rate increase is likely to be their next move after maintaining ultra-low borrowing costs for almost a decade.
Upcoming fundamentals: German economic expectations to improve in November
Following a calm trading day in the beginning of this week, we are waiting for a busy Tuesday to begin with the German ZEW Economic Sentiment data release, which is first up at 10:00 GMT. Economic expectations, which are based on a survey of 275 analysts and institutional investors, are estimated to tick up from 10.4 points in October to 15.2 points last month. The Euro zone's sentiment index is forecasted to follow Germany by rising from 28.3 points to 34.4 points. Meanwhile, US CPI will be out at 13:30 GMT. This is the last data release before tomorrow's Fed decision on interest rates, albeit it is unlikely to influence the meeting's outcome. Economists foresee the CPI gaining 0.2% on a core basis in November and project it to be unchanged on a headline basis month-on-month.
EUR/USD is determined to breach 200-day SMA
EUR/USD's volatility surged on Monday, despite the lack of fundamental news and in anticipation of the looming Fed interest rate decision. The pair was testing the 50% Fibonacci retracement of an Oct-Nov downtrend at 1.1008 during the Asian session. However, the bulls are mainly ignoring this resistance, in order to focus more on the 200-day SMA at 1.1033. This moving average is guarded by the 100-day SMA from the north with a 26-pip gap. Considering difficulties to consolidate above both of them earlier last week, we are skeptical about the pair's ability to do that in the next 24 hours as well.Daily chart
In the one-hour chart we are looking at September low (1.1088), which is being neared by the EUR/USD cross for the moment. On top of that, the pair is additionally underpinned by positive-sloping 200-hour SMA, currently at 1.0903. Therefore, we expect to see a tightening range of trading in the next few days and uplifted volatility, especially because of the FOMC meeting tomorrow.
Hourly chart
SWFX sentiment flat for a third day; pending orders fluctuate around 50%
We should admit that a very similar situation is observed with the sentiment at OANDA and SAXO Bank markets; however, they are more negative towards the single European currency. OANDA bears are keeping an advantage of around 60% today, while SAXO Bank short open positions have a share of 69%.