- Share of long pending orders in 100-pip range stays at 58% on Thursday
- Market sentiment remains slightly bearish (53%) for a third consecutive day
- Bulls to set eyes on 1.14 if the Fed keeps rates unchanged
- Bears may target moving averages below 1.1150 in case the Fed hikes rates
- Economic events to watch in the next 24 hours: FOMC Interest Rate Decision and Press Conference; ECB Economic Bulletin; US Housing Starts and Building Permits (Aug)
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The Euro zone inflation unexpectedly eased in August, reinforcing the view the European Central Bank will expand its bond-buying programme to deal with economic risks associated with weak prices. The annual rate of inflation fell to 0.1% in August from 0.2% July. Meanwhile, the core measure, which strips out alcohol, tobacco, food and energy, climbed 0.9% in the reported month, after the 1.0% increase seen in July. On a monthly basis, consumer prices in the 19-country bloc posted zero growth, recovering from the 0.6% decline seen previously.
Lower oil prices prompted the ECB earlier in September to revise downwards its inflation outlook. The central bank predicted a gradual increase in inflation to 1.7% in 2017 from 0.1% this year. The ECB has already indicated that it is prepared to expand its bond-buying program beyond September 2016. Such a move could become necessary if inflation does not return to the ECB's medium-term target. Meanwhile, the Organization for Economic Cooperation and Development raised its 2015 economic growth forecast for the Euro zone by 0.1 percentage point to 1.6%, but cut its 2016 forecast to 1.9% from 2.1% in June.
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Upcoming fundamentals: All eyes on Fed's most crucial decision since 2006
Today seems to be the most important day this year from the perspective of monetary policy authorities as the Federal Reserve decides whether to increase interest rates for the first time in almost 10 years. At the moment the Federal Funds Futures are suggesting the probability of a hike is only 33%. Bloomberg survey, however, says that almost 50% of economists are favouring the move. The decision will be know at 18:00 GMT today, which will be followed by the press conference of the Chair Janet Yellen.
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Dollar fails to strengthen before Fed decision
Bears were dominating the development of the EUR/USD currency pair for the most part of Wednesday. However, eventually they lost advantage and the Euro surged back close to the 1.13 mark, despite initial losses expanding down to 1.1213. Trading is expected to be extremely volatile on Thursday, keeping in mind the most important decision of the Fed in almost a decade. In case they raise interest rates, we may observe EUR/USD slumping down to SMAs below 1.1150. On the other hand, a decision to refrain from the move may send the pair as high as 1.14 in the next 24 hours.Daily chart
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Even despite the fact that EUR/USD touched the 200-hour SMA yesterday, our outlook with respect to this cross remains neutral, because the Euro managed to recover fast. Still, a lot will depend on the Federal Reserve's decision today and turbulence is estimated to be uplifted.
Hourly chart
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SWFX sentiment is bearish towards EUR/USD
Meanwhile, the total number of bullish positions at OANDA amounts to 42.16% at the moment, while SAXO Bank market participants are even more pessimistic with respect to the common currency as their portion of the longs takes up only 33% (-4%) of all open trades.
Spreads (avg,pip) / Trading volume / Volatility
Community members forecast the Euro to rally against the US Dollar this week
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As volatility in the equity markets remains uplifted, traders are moving away from the Greenback as Fed meeting approaches. As a result, the advantage of bullish votes increased even more over the past five trading days, up from 53% to almost 63%. Market participants also see the pair higher by Friday of this week, with the mean forecast being placed at 1.127.
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Among traders, Jignesh claims that "this week's main risky event is the Fed rate statement. The expectation is for a sell-off in the USD as the Fed is unlikely to raise rates, based on the current inflation outlook. Resistance comes in at previous highs around 1.16 - 1.17, which is a likely place for the pair to revert."
Average forecast says EUR/USD will trade at 1.13 by December
Meanwhile, traders, who were asked regarding their longer-term views on EUR/USD between Aug 17 and Sep 17 expect, on average, to see the currency pair around 1.13 by the end of December. Though the majority of participants, namely 55% of them, believe the exchange rate will be generally below the 1.14 mark in ninety days, with 37% alone seeing it below 1.10. Alongside, only 25% of those surveyed reckon the price will trade in the range between 1.14 and 1.20 by the end of December of this year. © Dukascopy Bank SA