- Bullish transactions rose to the highest level in 17 days, up from 45% to 46%
- Pending orders to buy EUR improved above 50% in both short and long ranges from the spot
- Within the bearish pattern EUR/USD risks tumbling to 1.0650 in the medium-term
- Daily indicators renewed neutral status, but weekly/monthly studies remain strongly negative
- Economic events to watch in the next 24 hours: German Real GDP Growth (2015); Italian Industrial Output (Nov); Eurogroup Meeting; EBC Monetary Policy Meeting Accounts; US Unemployment Claims (Jan 8); FOMC Member Bullard Speaks
The Euro zone industrial production dropped sharply in November, while there was also evidence that weaker demand for exports from China and other developing countries are restraining the currency bloc's fragile economic recovery. According to Eurostat, the output of factories, mines and utilities declined 0.7% in November from a month earlier, marking the largest month-on-month drop since August 2014. When measured on an annual basis, industrial production rose 1.1% from the same month last year. The decrease in the output was triggered by the energy sector, which plunged 4.3%. Furthermore, there were also falls in the manufacture of capital goods and durable consumer goods that indicate a weakening of demand for some of the Euro zone's exports. The European Central Bank expressed fears that slowdown in China and other emerging economies including Brazil, Russia and South Africa will hurt the Euro zone's modest recovery by reducing demand for exports. The currency bloc's economy slowed in the three months through September, growing a modest 0.3%. Economists, however, estimate that the economy has expanded at a 0.4% to 0.5% rate in the final quarter of the year.
Australia's unemployment rate remained steady at 5.8% even as employment declined last month following two months of strong growth. The Australian economy lost a net 1,000 jobs in December, according to the Australian Bureau of Statistics. The jobless rate remained unchanged at 5.8%, the lowest level in more than a year. Economists, however, had predicted a net loss of 10,000 jobs and an increase in the unemployment rate to 5.9% last month. Full-time employment surged by 17,600 in the reported month after soaring 41,600 a month earlier, whereas 18,500 part-time jobs were lost following a 29,700 advance in November. Furthermore, the participation rate also declined from 65.3% to 65.1%, indicating there were less people in the labour market. The Australian labour market has performed particularly well over the last two years despite the magnitude of the mining slowdown. A surge in the services sector has helped to offset the large number of job losses in the resource industry. Early last year the Reserve Bank of Australia had estimated the jobless rate to hit 6.5%, whereas now the central bank expects it to stay around 6.0%-6.25% over the next year. Nevertheless, inflation remains stubbornly below the RBA's 2%-3% target band, at just 1.5% in the September quarter. Market participants are predicting less than a 20% chance the central bank cut its OCR at the February meeting.
Upcoming fundamentals: More ECB stimulus to be hinted today?
The European Central Bank is retaking centre stage on Thursday, by releasing minutes from its December monetary policy meeting. Last month the regulator disappointed markets by adding somewhat less support for the currency bloc's economy than markets had anticipated before the meeting. As a result of that, the Euro skyrocketed and European bonds collapsed. Disinflationary pressures and sluggish industrial output are weighing on recovery in the region, meaning the ECB could signal more stimulus at their meeting next week. Apart from that, finance ministers of all Euro zone countries will convene today in Brussels for the first time this year, in order to discuss progress of Greek economic reforms and budget deficit issues in many countries of the Euro area.
EUR/USD anchored by December downtrend
On Wednesday the most popular FX cross was testing the 1.08 area, which is reinforced by 55-day SMA at monthly pivot point. However, by the end of American trading the pair bounced off to close near 20-day SMA at 1.0880. The short-term action is still estimated to be bearish, given that EUR/USD keeps hovering under the two-month trend-line. By violating that crucial 1.08 zone, the pair will be exposed to a selloff down to 1.0750 (lower Bollinger band), followed by another downtrend at 1.0650. Such a case is presently expected by weekly/monthly technical indicators.Daily chart
The one-hour chart has a clearer indication that the EUR/USD cross is experiencing some issues with breaching the 1.08 mark. Despite that, as long as the Euro is holding ground below 1.0920 (trend-line), our projections will continue focusing on much lower levels in the medium-term.
Hourly chart
Market sentiment and pending orders improved in favour of the Euro
While SWFX market participants decided to buy more euros against the US Dollar on Wednesday, the opposite case was in place at OANDA and SAXO Bank. Their bullish clients lost around three percentage points in the past 24 hours, meaning earlier Tuesday gains were completely erased yesterday. The bears have in turn expanded their market portion up to 59% and 65% at OANDA and SAXO Bank, respectively.
Spreads (avg,pip) / Trading volume / Volatility
55% of Dukascopy Community members see the Euro recovering versus the US Dollar by the end of this week
Last week the majority (56%) of Dukascopy traders expected the most traded FX cross to depreciate, even though by the end of the week the cross managed to gain value. This time around 55% of Community members see the common currency higher on Friday of this working week.
Concerning traders' opinions on the matter, rokasltu assumes that "EUR/USD pair presently holds sub 1.10 area. I suppose, the Euro's advance is limited, thus lower correction is expected." From another side of the coin, STARLINE thinks that "during the next period (week) we could observe a rebound in EUR prices against USD."