EUR/USD breaches Dec-Jan downtrend

Note: This section contains information in English only.
Source: Dukascopy Bank SA
  • The share of long positions declined further from 45% to 44%
  • Wider-range commands to buy the single European currency are also in the minority with 45%
  • Volatility is at risk of growing due to lower trading volume on Monday, as markets are closed in the US
  • Daily studies are neutral with respect to EUR/USD
  • Economic events to watch in the next 24 hours: Italian Trade Balance (Nov); German Bundesbank Monthly Report

© Dukascopy Bank SA
Another selloff that drove worldwide equity markets down was immensely positive for the common European currency on Friday of the last week. Commodity market developments sent oil prices below $29 per barrel, meaning all dependent currencies were under heavy pressure. EUR/AUD and EUR/CAD were the day's best performers, by registering a jump of 2.3% and 1.7%, accordingly. The Kiwi took a smaller hit and declined by only 0.7% against the Euro. In the meantime, the Sterling capitulated by 1.6% before the weekend, as data showed UK construction output has unexpectedly dipped by 0.5% in November 2015 and economists forecasted the same percentage of growth. US data was surprisingly disappointing across the board, with weaker-than-projected numbers coming from retail sales, manufacturing activity in the state of New York and industrial output for the whole country. Only the consumer sentiment index managed to provide a positive surprise for already depressed markets. The Dollar weakened by half a percent versus the 19-nation currency.

The UK construction output unexpectedly dropped in November, experiencing the biggest decline since May 2013, adding to signs that the nation's economy may struggle to gather steam after a mid-year slowdown. Output of the British building companies declined 0.5% on a monthly basis in November, according to the Office for National Statistics. Analysts, however, had predicted a 0.5% rise. In annual terms, output decreased 1.1%, against expectations that it would stagnate in the reported month. The ONS said bad weather may have undermined the construction activity, which accounts for around 6% of economic output. A sharp drop in construction output in the third quarter weighed on economic growth, which matched its lowest rate since late 2012 over that period. Construction output plunged 1.9% in the third quarter of 2015. The ONS said construction output would have to climbed by 2.6% month-on-month in December to avoid a decline for the fourth quarter as a whole. However, Markit/CIPS reported earlier January that the UK builders' activity picked up pace in December as commercial construction surged at the fastest pace since October 2014, and the outlook for 2016 improved. The headline PMI measure increased to 57.8 in December, up from a seven-month low of 55.3 in November.

The German economy, the Euro zone's pride, which is the only one in the currency bloc that has registered consistent growth since the financial crisis, grew by 1.7% last year, as robust domestic consumption and booming exports to the US helped to offset headwinds from Greece and other export markets. In 2014, the Euro zone's number one economy expanded 1.6%. Germany is benefitting from unprecedented stimulus by the European Central Bank. With the jobless rate at a record low, wages climbing and oil more than 37% cheaper compared to last year, domestic spending has become the key catalyst of economic growth. Private consumption increased 1.9% in 2015 from 0.9% last year, the most since 2000. Domestic demand contributed 1.5 percentage point to GDP. Exports surged 5.4%, while imports soared 5.7%. The Bundesbank predicts the nation's economy to grow 1.8% this year and 1.7% in 2017. Some analysts predicted that the German economy would benefit from the influx of 800,000 refugees into the economy, as private demand is likely to jump. Moreover, the ECB expanded its QE programme in December to at least 1.5 trillion euros and cut one of its key interest rates further below zero, providing additional support to the Euro zone economy.

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Upcoming fundamentals: Daily preview suggests light trading session on Monday



There are few economic events planned for Monday of this week, as we are heading for busy days afterwards. In Europe, Italian trade balance data for November will be out at 9:00 GMT. Analysts expect a decrease of the surplus to 3.24 billion euros from 4.81 billion euros in October. In the meantime, US markets will be closed due to the Martin Luther King Day, meaning no fundamentals are published in this country today. Later this week, however, we are looking forward for much more attractive trading. Besides many data releases all around the world on Tuesday-Friday, two major central banks will hold their scheduled meetings and the World Economic Forum in Davos will kick off on Wednesday.


EUR/USD breaches Dec-Jan downtrend, exposes 1.10 area

On Friday the most popular FX currency pair violated the two-month trend-line near 1.09, while daily gains attempted to push the pair as high at 1.10 (100-day SMA; Bollinger band). However, bearish market participants overtook the lead by the end of US trading and closed the week at 1.0915. Some weakness is possible on Monday, as Bank Holiday in the US is likely to reduce daily trading volume. After breaching the trend-line, the bulls will try to test the aforementioned 1.10 mark this week, even though this scenario is not particularly encouraged by negative weekly technical indicators.

Daily chart
© Dukascopy Bank SA

The pair is still expected to consolidate above the bearish trend-line in the one-hour chart. The bullish case is supported by 200-hour SMA at 1.0860, which tends to move slightly upwards at the moment. By confirming the 1.0910 level in the next 48 hours, the pair will be able to reopen September low at 1.1086 as the next long-term bullish target.

Hourly chart
© Dukascopy Bank SA

Sentiment remains Euro-short, pending orders are also mostly bearish

The percentage of bullish open positions in the SWFX market decreased from 45% to 44% over the weekend, posting a second consecutive day of one p.p. loss. Therefore, it seems that market participants are refraining from going long on the Euro, by preferring the US currency in times of uplifted global market volatility. We see the similar trend for pending orders to acquire or sell the Euro against the Greenback. While in the range of 50 pips around the spot they improved to 51% over the course of the past 72 hours, in 100-pip range the share of positive commands deteriorated to 45%.

Meanwhile, 55.82% of OANDA clients continue holding bearish positions on the EUR/USD currency pair. Traditionally, SAXO Bank market participants are even more pessimistic with respect to the observed cross, as their bearish traders are enjoying a majority of 65% on January 18.










Spreads (avg,pip) / Trading volume / Volatility



Average forecast says EUR/USD will trade at 1.08 by April

Meanwhile, traders, who were asked regarding their longer-term views on EUR/USD between Dec 18 and Jan 18 expect, on average, to see the currency pair around 1.08 by the end of April of this year. Majority of participants, namely 52% of them, believe the exchange rate will be generally below this level in ninety days, with 28% alone seeing it below 1.04. Alongside, 28% of those surveyed reckon the price will trade in the range between 1.08 and 1.14 by the end of April.

© Dukascopy Bank SA

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