EUR/USD nears third monthly resistance line

Note: This section contains information in English only.
Source: Dukascopy Bank SA
  • Distribution between long (48%) and short (52%) traders is almost equal on February 5
  • Continuously positive pending orders are sending a clear signal that traders want to acquire the Euro
  • US employment report should determine most of Friday's movement for the pair
  • Mixed aggregate signal is offered by daily/weekly technical indicators
  • Economic events to watch over the next 24 hours: German Factory Orders (Dec); ECB's Nouy Speaks; US Non-Farm Employment Change (Jan), Unemployment Change (Jan) and Average Hourly Earnings (Jan)

© Dukascopy Bank SA
Markets used to focus on incoming central bank events and some particular fundamentals throughout Thursday, while mostly disregarding speeches among officials. For instance, speech by the ECB President Mario Draghi was almost completely forgotten by the Euro, which continued to appreciate despite dovish comments made by ECB President. The steepest rally of 1.04% was posted by the pair with the Sterling, as the Bank of England renewed its stance to be more dovish amid global economic uncertainty. The only hawk of the MPC Ian McCafferty dropped his call for an immediate rate hike by 25 basis points. The BOE Governor Mark Carney has, however, calmed down increasingly soft market expectations, by saying that the next BOE move is going to be a rate increase, not a cut. Along with main decisions, policymakers have downgraded their inflation and GDP growth estimates. EUR/USD jumped by 0.94% in anticipation of today's employment statistics and due to speculations the Fed is unlikely to hike interest rates at its March meeting.

The European Central Bank President Mario Draghi voiced another strong hint that the bank is ready to act decisively to combat weak inflation. Draghi said that even though inflation is low globally, it would not stop the central bank from adding stimulus to the Euro zone if necessity arises. Moreover, the risk of acting too late is greater than that of acting too early as a wait-and-see mode could result in a lasting loss of confidence. The ECB is currently reviewing its monetary policy actions and policy makers will decide on March 10 whether the current plan of negative interest rates and a 1.5 trillion-euro QE programme yield fruit. Meanwhile, the latest data showed consumer prices in the Euro area climbed an annual 0.4% in January and the rate is likely to turn negative in coming months. The reading has been below 1% for more than two years. While Euro zone's unemployment dropped to the lowest level in four years in December, the region's manufacturing and services industries lowered prices at the quickest pace in almost a year in January, underscoring challenges for the ECB to bring inflation to the targeted level. Draghi said Japan's experience showed how global monetary policy makers could underpin inflation if they were fully committed to doing so.

The Bank of England revised its economic growth forecasts due to a gloomier global outlook. Moreover, the lone policy maker who had voted for a rate hike in recent months unexpectedly changed his mind. The BoE's Monetary Policy Committee had voted 9-0 to keep rates on hold at a record-low 0.5%, where they have stayed for almost seven years. The central bank said sharp plunge in oil prices and equities, and significant risks in emerging economies, weighed on the global outlook, though sturdy domestic demand should ensure the UK growth still remained near its long-run average. The BoE forecast the UK's economy would grow 2.2% this year and 2.3% in 2017, down from f2.5% and 2.6% in predicted in November and barely changed from 2015, when growth disappointed expectations. On top of that, the February Inflation Report lowered the short-term inflation outlook, with CPI at around 0.82% and 1.91% by the end of 2016 and 2017 respectively. The BoE expects inflation to exceed the 2% goal during the first quarter of 2018 for the first time. Discussing monetary policy tools the central bank has at its disposal, the BoE Governor Mark Carney said that interest rates were not at the lower bound, meaning they could be cut further. However, Carney highlighted that policy makers did not consider negative rates, as monetary policy was pointing in a different direction. Currently the market participants are pricing the first interest rate increase at the turn of 2017-2018.

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Upcoming fundamentals: It's a jobs day USA!



European market session on Friday will be marked by Germany's data on monthly factory orders. Later in the day, namely at 11:30 GMT, President of the Supervisory Council at the European Central bank Daniele Nouy is going to speak about the single market for EU banks at a conference in London. With European news coming to an end at this point, all market attention will switch to the US where a monthly employment data is due at 13:30 GMT. Payrolls posted a much better-than-anticipated advance of 292,000 jobs in December. In January the world's largest economy has probably created less than 200,000 jobs for the first time since September. Analysts' average estimate stands at 190,000 new jobs, with jobless rate set to be unchanged at 5%. Recent turmoil in global markets could have provided some negative influence on hiring, even though an earlier ADP report had revealed the pace of job creation is confident around 200K on a monthly basis.


EUR/USD nears third monthly resistance line

European common currency continued rallying versus the Greenback on Thursday, by adding 104 extra pips to end the American session at 1.1207. Bottom line: the EUR/USD cross managed to consolidate above 200-day SMA and violated the closest resistance at 1.1115 (weekly R3; monthly R2). Now the focus is turning to the last February monthly supply level at 1.1246, which is only followed by Sep 2015 high at 1.1460. We are watching US payrolls very closely, and a miss of an average forecast should see the pair climbing above the monthly R3.

Daily chart
© Dukascopy Bank SA

Outlook for the most popular FX cross is strongly positive at the moment. Possibly, only several round levels including 1.12, 1.13 and 1.14 are capable of containing the gains on Friday. The bulls are already setting eye on the last year's September high at 1.1460. More buoyant momentum will also be coming from upward-developing 200-hour SMA, even though this line has a huge 255-pip spread with the spot right now.

Hourly chart
© Dukascopy Bank SA

Sentiment improves further after EUR/USD's rally

Pending orders are staying above the 50% threshold for a second day in a row in both 50 and 100-pip ranges from the current market price. The share of shorter-range orders is 59% at the moment (55% yesterday), compared to 63% for 100-pip commands (60% yesterday). This is an encouraging signal for future market sentiment among open positions, which are in turn approaching the equality between the bulls and bears. Bullish side advanced by three percentage points to rise up to 48% this morning.

Despite that, we have been observing practically no changes with respect to the sentiment provided by OANDA and SAXO Bank. EUR/USD continues to maintain the worst bullish-bearish gap at OANDA, as the former are holding only 37.85% of all transactions. Alongside, the bullish SAXO Bank portion keeps hovering even below 29% on Friday.











Spreads (avg,pip) / Trading volume / Volatility




Dukascopy Community members are divided on perspectives of EUR/USD

© Dukascopy Bank SA

Despite pure negative development of the pair during the end of January 25-29 week, participants of our weekly Community Forecasts quiz are completely divided in their forecasts for the period, which is due to end on February 5. Average expectation for Friday-end is gradually nearing the 1.09 mark.


As for some specific forecasts among traders, Besim76 says that "EUR/USD slipped 18 points after the release of Euro zone inflation data and weak German retail sales. The US dollar soars as oil prices continued to rally. Euro zone inflation ticked up in January, only modest relief for the European Central Bank, which is still likely to cut rates again as price growth could turn negative by the spring and lending suffered an unexpected setback."

Average forecast says EUR/USD will trade at 1.0950 by May

Meanwhile, traders, who were asked regarding their longer-term views on EUR/USD between Jan 5 and Feb 5 expect, on average, to see the currency pair around 1.0950 by the end of May. Though a half of all participants believe the exchange rate will be generally below 1.10 in ninety days, with 31% (-1%) alone seeing it below 1.06. Alongside, 33% (+2%) of those surveyed reckon the price will trade in the range between 1.10 and 1.16 on May 31.

© Dukascopy Bank SA

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