- SWFX sentiment plummeted to the lowest level in 20 months; bullish share is down to 34%
- Pending orders are ignoring sentiment changes and are betting on gains for EUR vs USD
- Monday fundamentals are unlikely to result in volatile FX market
- Mixed aggregate signal is still offered by daily/weekly technical indicators
- Economic events to watch over the next 24 hours: German and Spanish Industrial Production (Dec); US Labour Market Conditions Index (Jan)
German factory orders declined more than expected in December amid a weak demand at home and in other Euro zone countries. According to the Economy Ministry, orders decreased 0.7% in the reported month from November, when they climbed 1.5%. Domestic orders declined 2.5%, while demand from the Euro zone countries plunged 6.9%. At the same time, orders from outside the Euro bloc jumped 5.5%. The government recently downgraded its growth outlook for the German economy to 1.7% this year from 1.8% due to concerns about weakening growth abroad and global political tensions. In 2015, the Euro zone's biggest economy expanded 1.7%. At the same time, in the Euro area's second biggest economy trade deficit declined last year to the lowest level since 2009 mainly due to cheaper oil imports. With oil and other natural resource imports accounting for about 75% of France's shortfall, the trade gap contracted to 45.67 billion euros last year, down from 58.3 billion in 2014. Supported by a weaker Euro, exports surged 4.3% with aircraft and car sales particularly robust, while imports increased only 1.2% amid low energy prices. Separately, the Bank of France reported that the current account balance showed a deficit of 700 million euros in December following a 1.5 billion shortfall in November.
The US economy created fewer jobs in January than expected, but rising wages and the unemployment rate at an eight-year low signalled the labour market recovery remains strong. Non-farm payrolls rose by 151,000 jobs last month, missing expectations for a 190,000 gain and following 292,000 new jobs created in December. Yet, it appeared to be enough to push the US jobless rate to 4.9%, down from 5.0%, the Labor Department reported. In January, all the employment gains were in the private sector, which added 158,000 jobs. The services sector dominated the payrolls increase last month, with 118,000 jobs created. The labour participation rate rose to 62.7%, near four-decades low. Fed Chairwoman Janet Yellen said the US economy needs to create just under 100,000 jobs a month to keep up with growth in the working age population. The data came on heels of a private sector report, which showed 205,000 jobs were created in January. In addition to that, average weekly earnings increased 12 cents an hour or 0.5% on a monthly basis, translating into a 2.5% annualized gain. Until recently, wage growth has been the one factor missing from America's recovery from the recession. As the unemployment rate remains low, many economists expect Americans to see paychecks increase.
Upcoming fundamentals: Calm Monday after stormy Friday
Last week was busy in terms of many important incoming fundamental data releases. It seems that nothing was left for the first few days of this working week. Economic calendar for both Europe and the US assumes the FX market should be little influenced by data releases on Monday. German data for industrial production in December should be already published by the time this report is released. Alongside, Spanish manufacturing data for the last month of 2015 is out at 8:00 GMT. Supported by government investment programmes, Spain's industrial sector is projected to register gains of more than 4% on a year-to-year basis. In America, the Labour Market Conditions Index will come out at 15:00 GMT. Released by the Federal Reserve, this index tracks changes in employment conditions and is seen as an important gauge among market participants. January index has probably dipped to 2.5 points from 2.9 in the preceding month.
EUR/USD's bears to face monthly R2
Last Friday was the first bearish day for EUR/USD in six consecutive trading sessions. After touching the third monthly resistance at 1.1246, the pair has immediately bounced back to close slightly above 1.1150. On Monday the volatility could wane, but the bears will continue aiming at the monthly R2 at 1.1115. Success here should put more pressure on the pair, in order to send it down to 200-day SMA at 1.1052. The moving average should in turn be able to underpin EUR/USD along with the weekly pivot point at 1.1072.Daily chart
In the one-hour chart our expectations for EUR/USD are unchanged for the time being, as the cross is managing to hold gains above September 2015 low at 1.1086. Moreover, any drop below here will meet an upward-sloping 200-hour SMA at 1.0976, which is ready to provide more bullish momentum for long traders.
Hourly chart
Sentiment plunges as bullish market share crashes to 34%
Those sharp changes of the SWFX market sentiment used to have little overall influence on the distribution between the bulls and bears on both OANDA and SAXO Bank markets. EUR/USD maintains the worst outlook among OANDA traders, as only 39% of all positions are bullish there. The portion of the longs is even lower on the SAXO Bank market – just slightly more than 30%.