- Sentiment among SWFX traders has been unchanged (57% short) since Monday of the previous week
- EUR fell a victim to the turbulent Monday session, as pending orders are backing the Greenback again
- Key long-term supply is 1.1044, where 100-day SMA merged together with 200-day SMA
- Short-term technical studies are mixed, as weekly indicators foresee losses for EUR
- Economic events to watch in the next 24 hours: German Unemployment Change and Unemployment Rate (Dec); Italian CPI (Dec); Euro zone CPI (Dec); US Vehicle Sales (Dec)
The Euro zone manufacturing sector continued to recover in December, with every country enjoying output growth and job creation in the reported month. The Euro bloc's final manufacturing PMI climbed to 53.2 in December, up from 52.8 a month earlier, marking the highest reading since April 2014. Moreover, the average PMI reading for 2015 as a whole was better than in the prior three years. Italy enjoyed the fastest growing activity in the manufacturing sector, with its rate of expansion rising to a 57-month high. New export orders at Euro zone manufacturers rose to the highest level in seven month. Furthermore, December saw a rise in manufacturing workforce levels registered in all of the nations for the first time since August 2007. A separate report showed consumer prices in Germany, the Euro zone powerhouse, unexpectedly slowed their growth in December. Inflation in Europe's number one economy climbed to an annualized 0.3% in the reported month, compared with the 0.4% growth in November. Measured on a monthly basis, the gauge dropped 0.1% in December, down from a 0.1% uptick in the preceding month. German inflation remains stubbornly below the ECB target of just under 2%.
Business activity in the UK manufacturing sector unexpectedly weakened in December, adding to signs the sector is unlikely to contribute much to overall economic growth. The Markit/CIPS manufacturing PMI dropped to 51.9 last month, sliding to the lowest level in three months, compared with 52.5 in November. Manufacturing failed to add to Britain's economic growth throughout the first three quarters of 2015, with the services industry being the main driver of economic expansion. The output and new order growth slowed further in the reported month. According to the Confederation of British Industries, British manufacturers saw some improvement last month, as export orders rose. However, the CBI warned that the sector predicted a mild contraction over the next three months. Manufacturers continue to struggle with the strength of Sterling and weak demand in the Euro zone, the UK's main trading partner. A separate report showed, the number of mortgage approvals rose to 70,410 in November, up from a revised 69,867 a month earlier and the highest level since August 2015. Moreover, consumer credit continued to increase, surging by 1.5 billion pounds in November. Persistently low inflation, strong labour market and increased consumer confidence have been underpinning credit flow recently, with household spending being one of the most significant upside drivers for the UK economy.
Upcoming fundamentals: All eyes on Euro zone inflation today
Consumer-price growth in the Euro area is expected to continue falling short of the European Central Bank's goal of 2%. The data later on Tuesday at 10:00 GMT will most probably show inflation accelerating up to 0.4% on a yearly basis last month, following November's 0.2%. At the same time, disappointing numbers from Germany and Spain earlier this and last week could put downside pressure on the CPI reading. Adding to that, in early December the ECB curbed its deposit rate down to -0.3% and prolonged its QE programme until March 2017, with the aim of fighting persisting deflation threats. In the meantime, German labour market data will be out at 8:55 GMT today. Analysts estimate a 7,000 decrease in the total number of people out of work. The jobless rate is projected to stay flat at 6.3%.
EUR/USD tumbled to settle near 1.0830
EUR/USD posted minor losses during the first trading day of 2016, even though daily highs and lows ranged from 1.0950 to 1.0780. Weak US production data limited that Euro's decline on Monday, and the pair managed to close above the crucial support represented by the monthly pivot point and July 2015 low. Focus remains on the downside, as it seems that EUR/USD is building another bearish channel in the daily chart. However, inability to violate the 1.08 demand for a second time could result in purchases of the pair and an advance in the direction of the weekly pivot point at 1.09.Daily chart
Despite briefly crossing last year's July low, EUR/USD is able to hover above this important level for the time being. There is a possibility of a rebound in the medium-term, but 200-hour SMA (1.0919) will provide another bearish impetus to the Euro, meaning the risks are still skewed to the downside.
Hourly chart
Pending orders back in red after turbulent Monday session
At the same time, advantage of the bears over bulls continued to narrow down in both OANDA and SAXO Bank markets. The former's short traders are now holding 56.25% of all positions at the moment (58.7% yesterday). Alongside, SAXO Bank market participants decreased the total number of their bearish positions down from 65% to 63% by the January 5 morning.