- SWFX sentiment deteriorated, as 57% of all positions are short (54% yesterday)
- More orders are now placed to go long on the Euro within 50 and 100 pips from the spot, almost 60% in both of these ranges
- First report on US employment in March is going to set tone for trading on Wednesday
- On a daily basis, technical indicators keep generating positive signals
- Economic events to watch over the next 24 hours: Swiss KOF Leading Indicator (Mar); German CPI (Mar); US ADP Employment Change (Mar) and Crude Oil Inventories (Mar 25); FOMC Member Evans Speaks
Japan's industrial production declined the most since March 2011 earthquake as declining exports curtailed demand and amid a nationwide output shutdown at Toyota Motor Corp. Industrial output plunged 6.2% in February from the previous month, according to the Ministry of Economy. The government expects that output will increase 3.9% this month and 5.3% in April. Yet, the decline in output was likely exaggerated by Japan's largest automaker stopping production at all its factories in Japan between Feb. 8-13. Toyota halted output due to a problem with parts supplies stemming from an explosion at a steel maker Aichi Steel Corp. on Jan. 8. Nevertheless, the data suggest industrial production is undermining growth in the first quarter, adding to signs of weakness in the world's third biggest economy in early 2016, after a 1.1% annualized contraction in real GDP in the last three months of 2015. Economists predict the Japanese economy to grow 0.6% in the January-March period. However, if Japan's GDP contracts again, that would be the sixth quarterly contraction and second recession since Shinzo Abe returned as prime minister in December 2012. A number of economists already expect the BoJ to announce an expansion of the asset-buying programme or to lower interest rates further, having already deployed a negative interest rate strategy in January.
US economic growth slowed less than expected in the fourth quarter, with somewhat strong consumer spending offsetting the attempts by businesses to lower an inventory overhang. US gross domestic product rose at a 1.4% annual rate compared with the previously reported 1% pace, according to the Commerce Department. The economic growth revision shows better consumer spending on services and reinforces the view that the domestic economy is on a stable footing and continues to grow. Consumer spending, which accounts for more than two thirds of US economic output, surged 2.4%, compared with the 2.0% rate reported last month. However, declining profits and weak business investment reflect overseas uncertainty has hit manufacturers, energy firms and financial markets. First quarter estimates are around a 1.5% rate, with the risks to growth are tilted to the downside. Meanwhile, the PCE data came out lower than predicted, taking pressure off the Fed to resume interest rate increases. The price index for personal consumption climbed 0.1% last month. The core measure increased 1.7% over the past 12 months. In addition to that, consumer outlays edged a mere 0.1%, compared with a 0.2% expected by economists. A separate report showed the pending home sales index advanced 3.5% to 109.1 points in February, the highest since July.
Upcoming fundamentals: German consumer price growth to turn green in March
Over the European session, the only major market driver is likely to be German inflation that is released by midday. A monthly increase in consumer prices has probably reached 0.6% in March, following a 0.4% rise in the preceding month. Based on that, annual inflation in the largest country of the Euro area is expected to pick up to 0.1%. American trading will focus on the first report about US employment conditions in March. The ADP will publish its data by 12:15 GMT, as the mean forecast supposes the world's largest economy is set to generate 195,000 jobs this month.
EUR/USD touches downtrend at 1.13 after Yellen
EUR/USD became pretty much buoyant on Tuesday after dovish remarks by the Fed Chair Janet Yellen. Initial resistance area was penetrated relatively easily, while successful testing of the weekly R1 at 1.1250 paved the way for a surge up to 1.13. Daily technical indicators suspect the pair will extend the rally until the second supply zone for today at 1.1340. There we have got the current March high, weekly R2 and another downtrend line. In case the advance is not contained, the attention will then switch to the Feb high at 1.1377. Future dips have to be temporarily capped by the 55-day SMA at 1.1063.Daily chart
In the one-hour chart for the EUR/USD currency pair, the short-term outlook has significantly improved over the past 24 hours. Finally, it managed to escape a narrow trading range between the two-month downtrend (1.1110) and the 200-hour SMA (1.1216). Now the focus is on the September 2015 high at 1.1459, but the most immediate obstacle is the March 17 peak at 1.1342.
Hourly chart
Sentiment slumps as long positions take profit
Similar to the SWFX market, sentiment has considerably worsened in both OANDA and SAXO Bank marketplaces. With the former, less than 40% of all positions are now long, and this gives us a circa seven-percent decline from the level we saw yesterday. Meantime, SAXO Bank clients are now almost 69% bearish on the Euro and this number rose from 66% in just one working day.
Spreads (avg,pip) / Trading volume / Volatility
Dukascopy Community members continue predicting losses for EUR/USD
Community members believe the pair will be able to slip to 1.10 by this Friday, just slightly below the weekly S2. The number of bulls and bears is almost equal, hence, the outlook is unclear, but still, the bearish votes weight. Technical indicators, in turn, do not give a clear ‘buy' or ‘sell' signal. According to Jignesh's views, "after a quiet week, the EUR/USD is setting up for a volatile week ahead. Early in the week we have Yellen speaking and the USD can be heavy ahead and possibly during. Though bearish pressure may kick in mid week, the pair is largely supported to the downside as the pair remains in a broader bullish cycle. The directional move may occur late in the week on the back of NFP."
A bearish opinion is provided by Besim. He generally suggests that "The EUR/USD dipped 16 points on the holiday to trade at 1.1160 with no major data announcements, except for US GDP. American data have steadily improved over the last few weeks, with Bloomberg's gauge of economic surprises climbing to the most positive level in more than a year."