- Sentiment worsened for the first time in seven trading days to be 59% bearish on EUR (previously 57%)
- Bearish scenario is supported by pending orders, which are set to sell the Euro in >60% of all cases
- Key bullish goal is a return back above the 1.08 resistance cluster, followed by 55-day SMA at 1.0836
- Technical indicators on all time frames are now projecting losses for this cross
- Economic events to watch in the next 24 hours: German Retail Sales (Nov) and Factory Orders (Nov); Euro zone Consumer Confidence (Dec), Retail Sales (Nov) and Unemployment Rate (Nov); ECB Monetary Policy Meeting Accounts; US Unemployment Claims (Jan 1) and Natural Gas Reserves (Jan 1)
The Euro zone economy enjoyed a solid end to 2015, even though the French economy continued to drag the region's economy. The headline indicator measuring activity in the Euro area's manufacturing and services sectors unexpectedly climbed in December and closed the strongest quarter in more than four years. The Euro zone composite PMI increased to 54.3, up from 54.2 in November. The services PMI rose to 54.2 last month, remaining unchanged from a month earlier. The survey also showed that in the final month of the year, private sector firms added new jobs at the fastest rate since May 2011. In France, the services sector activity dropped to the lowest level in 11 months, with the corresponding gauge falling to 50.1 from 50.3. At the same time, levels of activity in Germany, Italy and Spain, three of the currency bloc's biggest economies, remained solid. Markit predicts a modest 0.4% growth of the Euro zone economy in the final quarter of 2015, suggesting 1.5% growth for the year as a whole. Given subdued inflation in the currency bloc, the European Central Bank will be pressured to act further to support the struggling Euro zone economy and boost consumer prices.
Confidence among British services companies dropped to the lowest level in three years in December as the risk of Brexit impacted executives' mood. Markit's headline activity index declined to 55.5 last month from 55.9 in November, but remained above the long-run survey trend level of 55.2. The services sector accounts for roughly 80% of the UK economy. A strong measure of new business was offset by the weakest pace of job creation in the sector since July, while long-term expectations for business activity were the lowest since 2013. In addition to that Markit lowered its fourth quarter GDP estimate to 0.5% from 0.6% a month ago. The biggest downside contributors to the UK economy growth in 2015 were manufacturers and exporters. A strong Sterling meant UK exports became less attractive on the global arena. Significant downside risks remain in the British economy in 2016, including government spending cuts, a potential increase in interest rates, as well as the cost impact of the living wage. The Bank of England is predicted to hike interest rates in the second quarter of 2016. However, given inflation remains stubbornly low and earnings growth has been sluggish, financial markets see the central bank raising rates around the end of the year as a realistic scenario.
Upcoming fundamentals: European and US labour market statistics is due
Unemployment and retail sales data for the Euro zone will be due at 10:00 GMT on Thursday. The jobless rate is likely to hold steady at 10.7%, the lowest level in several years. Alongside, retail sales are expected to grow by 0.2% in November after a 0.1% decline in the preceding month. As for the world's biggest economy, unemployment claims for the week ended the first day of January are forecasted to slump to 271,000 from 287,000 one week before.
EUR/USD to retest resistance cluster at 1.08
After FOMC meeting minutes said that a rate hike decision was "a close call", market participants decided to sell the Dollar on Wednesday. Gains are being prolonged on Thursday at the moment of writing, with EUR/USD attempting to attack the busiest resistance zone at 1.08. However, another obstacle is represented by 55-day SMA at 1.0836, followed by 20-day SMA at 1.0861. Within the bearish pattern, the pair is capable of growing as high as weekly R1 near 1.0950, while the medium-term forecast still remains bearish, as suggested by technical indicators on all time frames.Daily chart
While EUR/USD is trying to cross the July low of the previous year in the one-hour chart, we are keeping a neutral bias with respect to this currency pair. Bearish risks are not off the table, given that EUR/USD hovered as low as 1.0730 for two consecutive days on Tuesday and Wednesday. Moreover, the 200-hour SMA (1.0873) is highly likely to put more downside pressure on the cross in the nearest future.
Hourly chart
Market sentiment drops to 12-week low
OANDA and SAXO Bank traders seem to be waiting for more prominent market signals right now, as they are opposing to exchange positions from bullish to bearish, vice versa. OANDA clients are still short on the common European currency in 55% of all trades, while SAXO Bank traders are traditionally more sceptical towards the observed currency pair (62% short).
Spreads (avg,pip) / Trading volume / Volatility
More than 57% of Dukascopy Community members see the Euro declining versus the US Dollar by the end of this week
This week traders' expectations did not change a lot, with 57% of Dukascopy Community members still predicting the pair to lose value.
Concerning traders' opinions on the matter, Zildjian suggests that "we can assume that the price will continue to fall and probably will reach the 1.075 level." Moreover, agddivisas observes that "now the pair is falling until the resistance level of 1.075. After that, the trend will change to the bearish one."