EUR/USD to see rising volatility this week

Note: This section contains information in English only.
Source: Dukascopy Bank SA
  • Bulls account for 53% of SWFX market, up from 52% seen on Friday
  • Future sentiment may deteriorate as bulls are keeping only 32% of 100-pip pending orders
  • Fed may raise a discount rate on Monday; EU PMIs will add to market turbulence
  • Daily technical indicators are mixed on Monday morning
  • Economic events to watch in the next 24 hours: French, German and Euro zone Manufacturing and Services PMI (Nov); US Manufacturing PMI (Nov) and Existing Home Sales (Oct); Fed Announcement

© Dukascopy Bank SA
The Euro was trading down across the board on Friday, with losses ranging from 0.15% against the British Pound, up to 1.44% versus the Australian Dollar. The South Pacific currency has fully recovered on a weekly basis as risk-off sentiment faded and confidence returned to the commodity currency. The Sterling, however, was the smallest gainer in relation to the 19-nation currency, owing to worse than expected public sector net borrowing data. UK Government borrowed 7.5 billion pounds in October, way above than 5.5 billion pounds projected by experts before the release. Additional downward impetus was provided by the ECB President Mario Draghi on Monday, which reinforced his view that additional monetary support (QE) will be on the table at the Governing Council's meeting in early December.

The European Central Bank is prepared to act promptly to underpin stubbornly low inflation in the Euro zone, providing investors with the strongest hint yet that the central bank will initiate a new round of fresh stimulus measures at its December meeting. ECB President Mario Draghi mentioned changes to the central bank's asset purchase programme and deposit rate as possible tools to prevent further declines in inflation below its goal of just under 2%. Draghi highlighted that the Euro zone's recovery strength was modest and the global outlook for demand, particularly in emerging countries, had deteriorated dramatically recently. Moreover, ECB President admitted that the risk increased that the ECB would miss the inflation target. The Euro dropped to 1.0683 versus the Greenback following Draghi's speech, after trading near 1.071.

Meanwhile, Jens Weidmann, the head of the German Bundesbank and the ECB Governing Council member, disagreed that the central bank should add more stimulus. Weidmann argued that the current measures still need some time to start working, adding that low oil prices act as stimulus. Moreover, Weidmann noted that core inflation would gradually rise towards the goal and that sharp decline in energy prices is the main reason behind low price growth.

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Upcoming fundamentals: A day of PMIs in Europe



This Monday is going to be unusually busy in Europe. We expect to get French and German data on November activity in manufacturing and services sectors. France is up first at 8:00 GMT, followed by Germany and the Euro zone at 8:30 GMT and 9:00 GMT, respectively. None of these indicators are estimated to fall below 50 points, meaning activity is set to continue growing. Meanwhile, the Euro group is expected to approve the next tranche of the bailout programme for Greece with the total amount of about 2 billion euros to cover budget shortfall and 10 billion euros to recapitalize the country's banks. On late Thursday the Greek Parliament passed the package of reforms needed to secure approval of the disbursement.


EUR/USD to see rising volatility this week

EUR/USD bounced back from 1.0730 on Friday and posted an 80-pip loss during the trading session. Monday is important day in terms of EU and US fundamentals. A possible Fed announcement to raise a deposit rate may easily push EUR/USD below 1.06. We are looking at Apr low at 1.0519 as the next reliable support for this currency pair. This level is guarded by monthly/weekly S2 and lower Bollinger band, which are highly unlikely to give up quickly.

Daily chart
© Dukascopy Bank SA

After EUR/USD returned below 200-hour SMA on Friday, confidence among the bulls worsened considerably. Even though the bearish scenario seems to prevail over the bullish one, the pair will shortly meet a support in face of a trend-line at 1.0580, which connects the Nov 6 and Nov 18 lows.

Hourly chart
© Dukascopy Bank SA

Bullish advantage over bears is stable at 53-47%

A revival of the Euro is still projected by a slight majority of SWFX market participants. We continue observing the bullish lead over bears of around six percentage points, which makes it a 53-47% distribution of trades opened in the SWFX market. Despite that, only 32% of traders have set their pending orders in 100-pip range to go long on the common European currency. Commands are considered to be a good predictor of future sentiment among traders.

Meantime, OANDA market participants raised their bullish expectations on the Euro to 54.21% by the Nov 23 morning. At the same time, around 52% of SAXO Bank traders are set to go EUR/USD short at the moment. Nonetheless, neither bulls nor bears see their advantage as confident and stable in all SWFX, SAXO Bank and OANDA markets.












Spreads (avg,pip) / Trading volume / Volatility



Average forecast says EUR/USD will trade at 1.085 by February 2016

Meanwhile, traders, who were asked regarding their longer-term views on EUR/USD between Oct 23 and Nov 23 expect, on average, to see the currency pair around 1.085 by the end of next year's February. Majority of participants, namely 65% of them, believe the exchange rate will be generally below 1.10 in ninety days, with 42% alone seeing it below 1.06. Alongside, only 21% of those surveyed reckon the price will trade in the range between 1.10 and 1.16 by the end of February 2016.

© Dukascopy Bank SA

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