EUR/USD returns to 1.10 ahead of ECB week

Note: This section contains information in English only.
Source: Dukascopy Bank SA
  • SWFX sentiment is bearish (52%) for the first time in ten days
  • Difference between long and short pending orders narrowed down, but keeps favouring the latter
  • Any rally above 200-day SMA at 1.1045 will neutralise current ECB-driven bearish outlook
  • Half of all daily technical indicators are pointing to the downside; another half is neutral on EUR/USD
  • Economic events to watch over the next 24 hours: German Factory Orders (Jan); FOMC Members Brainard and Fisher Speak

© Dukascopy Bank SA
Friday brought us a very limited set of economic data; however, all available statistics was important enough in order to move markets throughout the last day of the previous week. US employment change surprised to the upside, by booking an increase of 242,000 in February. However, wage inflation is failing to materialize and tightening labour market is not building upside salary pressure so far. Over Friday the Greenback weakened by 0.44% against the common European currency. Both Swiss Franc and Japanese Yen registered even sharper losses of 0.49-0.57% amid a broad flight into riskier assets. From the other side of the coin, commodity-linked currencies appreciated within one full percentage point, as oil prices are now trying to reclaim the $40 mark (Brent), the levels we have not observed since the beginning of the year.

The US economy created more jobs than expected in February, while the unemployment rate remained unchanged, highlighting the ongoing improvement in the labour market. US non-farm payrolls increased by 242,000 last month, compared with economists' expectations for 195,000 new jobs, according to the Labor Department. Moreover, the previous two months' revisions were positive, adding a net 30,000 uncounted jobs. The average pace over the past three months, at 228,000, albeit slower than late last year, is sufficient to keep pushing unemployment levels down. The unemployment rate held at the lowest level in eight years at 4.9% for the second consecutive month. Economists say that jobs creation would have to slow below 100,000 a month for the jobless rate to start rising. The Fed is looking for wage-driven inflation as a catalyst to continue policy tightening. The US central bank in December introduced a quarter-point increase in its interest rate target, the first such move in almost a decade. Even though officials hinted back in November that four rate hikes would be likely this year, Wall Street is predicting much slower pace as economic growth has slowed. Traders assign just a 2% chance to a March move, with December being the first month that has a more than 50% chance.

The Euro zone's services sector lost momentum for the second month in a row in February, led by a particularly weak performance in France. The Euro bloc's services PMI dropped to 53.3 in February, the lowest level since January 2014. The composite PMI, which includes both manufacturing and services sectors, decline to a 12-month low of 53.0. France's services sector was the worst performer, with the corresponding gauge falling to 49.2, down from 49.8, hitting the lowest reading since November 2014. Markit reported that French hotel and restaurant sector was particularly weak in the wake of the Nov.13 Paris attack. Meanwhile, Germany's services sector improved slightly, with the services PMI climbing to 55.3 last month, up from 55.0 in January. Germany's economy, the Euro zone's powerhouse, remained on a steady yet modest growth path last year as it expanded by 0.3% of GDP in the final quarter of 2015. On an annualized basis, the Euro zone's number one economy grew 1.3% in the reported period, compared with the 1.7% rate seen in the July-September period. A separate report showed Euro zone's retail sales weakened in January, climbing 0.4% on a monthly basis. On an annual basis, retail sales in the 19-nation bloc saw a 2.0% increase during the reported month, after an upwardly revised the 2.1% growth in the previous month.

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Upcoming fundamentals: FOMC members to take stage on Monday



The March meeting on the Federal Reserve is nearing and is going to take place next week. In the run up to that, any comments from members of the Federal Open Market Committee are very valuable and considered as high-importance events. Analysts are still undecided, whether the Fed is going to raise interest rates this month in the wake of positive US fundamentals and, at the same time, weak global economic data. The Fed Board member Lael Brainard will speak at 18:00 GMT at the Annual conference of the Institute of International Bankers in Washington DC, while audience questions are also expected. Alongside, the Fed's vice-president Stanley Fisher will talk at 18:30 GMT, also in the capital city of America.


EUR/USD returns to 1.10 ahead of ECB week

EUR/USD booked another bullish trading session last Friday, with gains extending beyond the 55-day SMA at 1.0972. After touching the 200-day SMA at 1.1045, the pair was forced to come back and finished the week at 1.10. The exchange rate will be turbulent this week, as the ECB decision approaches on March 10. Growth above the 200-day SMA will expose the first monthly resistance line at 1.1272, followed by the February peak at 1.1377. The bears, however, will be hoping for a reverse of the current tendency, as they are aiming at the February low of 1.0809.

Daily chart
© Dukascopy Bank SA

In the one-hour chart the bulls are being challenged by the mid-February downtrend line at 1.10, which is reinforced by the January uptrend. Here the outlook is gloomier and a failure towards the long-term downtrend at 1.08 is possible, also noting that daily technical indicators are giving bearish signals. On the other hand, EUR/USD can be supported by the 200-hour SMA at 1.0944.

Hourly chart
© Dukascopy Bank SA

Bulls struggle to remain above 50%, orders support bearish traders

Over the weekend the SWFX market sentiment worsened quite significantly, as the total percentage of bullish market participants slid from 53% to 48%. This is the lowest share for the bulls and the first minority in terms of open positions in two weeks. Another type of bearish support is being created by the pending orders that are still set to get rid of the Euro in most of the cases, namely 51-53% depending on the range from the present spot price.

OANDA and SAXO Bank sentiment has been little changed over the previous 72 hours. In both markets the bears are holding more than 50% of all open transactions at the moment. The only difference is the scope of the gap between the longs and shorts, which is only four pp with OANDA and reaches as much as 25% with SAXO Bank.











Spreads (avg,pip) / Trading volume / Volatility



Average forecast says EUR/USD will trade at 1.12 by June

Meanwhile, traders, who were asked regarding their longer-term views on EUR/USD between Feb 7 and Mar 7 expect, on average, to see the currency pair around 1.12 by the end of June. Though 59% (-2%) of participants believe the exchange rate will be generally below 1.14 in ninety days, with 44% (+1%) alone seeing it below 1.10. Alongside, 29% (+2%) of those surveyed reckon the price will trade in the range between 1.14 and 1.20 on June 30.

© Dukascopy Bank SA

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