- SWFX sentiment is Euro-negative (55%) for a fourth consecutive day
- Commands to sell the Euro (60%) are prevailing over those to acquire the single currency (40%)
- Wednesday is all about the Fed; uncertainty remains over the pace of 2016 rate hikes
- Short-term technical indicators are keeping the Euro-bullish bias ahead of FOMC
- Economic events to watch in the next 24 hours: FOMC Interest Rate Decision, Economic Projections, Monetary Policy Statement in Press Conference; French, German, Euro zone and US Manufacturing PMI (Dec); Euro zone Trade Balance (Oct) and CPI (Nov); US Housing Starts (Nov), Building Permits (Nov) and Industrial Production (Nov)
German investor morale continued to improve amid increasing confidence that the Euro zone's number one economy is strong enough to weather the refugee crisis and the economic slowdown in China. According to the ZEW Centre for European Economic Research, its index of investor and analyst expectations, which aims to foresee economic developments in the coming six months, surged to 16.1 in December, compared with 10.4 in November. A gauge measuring current conditions came in at 55.0, down slightly form 54.4 in November. The German Bundesbank kept its 2016 growth outlook for the nation's economy at 1.8% and projected the economic output to increase 1.7% in 2017. The central bank predicted export markets outside the Euro zone to recover and economic growth within the 19-nation bloc to gain a little more traction. Yet, domestic demand and particularly private consumption remains an important growth driver for the German economy. Furthermore, the Economy Ministry admitted that the nation's economy received additional boost from refugees. The Euro zone's powerhouse grew by 0.3% in the third quarter.
New Zealand's current account shortfall widened in the third quarter to NZ$4.75 billion following a revised deficit of NZ$1.17 billion in the June quarter, Statistics New Zealand reported. The steep expansion of the current account deficit last quarter was driven by the goods balance, which swung from a NZ$688 million surplus in the second quarter to a deficit of NZ$2.48 billion in the three months through September. In addition to that, the services balance contributed to the wider current account gap, with the June-quarter surplus of $503 million sliding into deficit by NZ$71 million. For the 12 months through September 30, the current account deficit shrank to NZ$8.10 billion, equivalent to 3.3% of gross domestic product, and compared with a revised NZ$8.26 billion on-year deficit in the second quarter. Earlier in the week New Zealand's Treasury updated its economic and fiscal forecast, predicting a small operating deficit as a slowing economy and benign inflation keep a lid on the government's tax-take. Yet, Finance Minister English was relatively optimistic about the outlook, and announced plans to increase the Crown's capital spending by $1 billion in the 2016 budget, thereby providing a boost to the economy. The move comes after RBNZ Governor Graeme Wheeler said infrastructure investment by the government would be a welcome addition in helping fuel economic activity and reviving flagging inflation.
Upcoming fundamentals: This is the most wonderful time of the year, as Fed is finally here
After ten long years, the Federal Reserve System is eventually estimated to raise the target range for the Federal Funds rate by 25 basis points to 0.25-0.50% later today. The FOMC decision will be known by 19:00 GMT. Along with that, the world's biggest central bank will release future economic projections for the US economy and expectations among the FOMC members about future rate increases. The latter point is probably the most closely watched today, being that the rate hike (probability 81%) is already pretty much priced into markets. Fed Funds probability suggests there will be only two rate rises in 2016, while FOMC members currently assume four lift-offs. In case new forecasts show a shift to more dovish Fed estimates, this situation will be capable of providing the US Dollar with a downward push. In the meantime, we have a lot of other fundamentals due to be released on Wednesday including PMI data for many Euro zone countries and US housing data. However, Tuesday's experience showed that markets are now mostly focused on the Fed and tend to ignore other statistics in terms of market reactions.
EUR/USD drops before FOMC; uncertainty remains
The US currency skyrocketed versus the Euro on Tuesday, by rallying circa 150 points to 1.0930. This level is placed under both 55-day SMA and weekly PP. On Wednesday morning we are observing a light trading, in anticipation of the most important Fed decision in recent years. Markets remain very cautious, as they suggest a hike is already priced into the Dollar. In case the FOMC disappoints from the side of future hike expectations, the EUR/USD may quickly bounce back towards yesterday highs at 1.1058 (100-day SMA). A hawkish surprise should give USD a boost up to 1.08 (Dec 7 low).Daily chart
After EUR/USD's depreciation on Tuesday, the pair touched 200-hour SMA in the one-hour chart. This line is managing to contain losses for the moment. From the technical point of view, the future success will depend on the pair's ability to deal with the moving average. However, Wednesday is the FOMC day, meaning fundamentals will be the main drivers of action in the next 24 hours.
Hourly chart
SWFX sentiment flat for a fourth day, despite the approaching Fed
While OANDA's market sentiment was little changed yesterday, SAXO Bank clients decided to open more bullish positions on the Euro in anticipation of the upcoming Fed rate decision. Separately, OANDA bears are holding 59.19% of all open positions, while the share of short traders at SAXO Bank decreased from 69% to 64.50% in the past 24 hours.
Spreads (avg,pip) / Trading volume / Volatility
Community members are divided in their opinions towards EUR/USD's movement this week
By Friday of this week, participants of the quiz suggest the most traded FX cross will hover somewhat above 1.08, down from last Friday's closing level of 1.10. Generally, market participants are widely undecided with respect to the pair's perspectives.
Concerning traders' opinions: "I believe the pair has reached its top for this month, namely 1.1050. The FED decision to raise interest rate is highly expected and this will certainly push the EUR/USD below 1.0830," says Nick Dundee. On the other hand, csan86 assumes that "the price broke through the last week's highs and tested the new levels. In my opinion, the trend is bullish, impulsive, and non-volatile in the long-term."