- 60% of all SWFX market positions are short
- Pending orders are also predominantly bearish on the pair
- Key support lies at 1.1376 (weekly/monthly PPs), more than 100 pips under the spot
- Daily technical indicators are mixed
- Economic events to watch over the next 24 hours: Euro zone Services PMI (Apr) and Retail Sales (Mar); Spanish Unemployment Change (Apr); US ADP Employment Change (Apr), Trade Balance (Mar), Unit Labour Costs (Q1), ISM Non-Manufacturing PMI (Apr) and Factory Orders (Mar); FOMC Member Kashkari Speaks
Atlanta Federal Reserve President Dennis Lockhart said that the UK's referendum on whether to leave the EU could "loom large" as the Fed weigh whether to hike interest rates at its next policy meeting. Lockhart underlined that Brexit could potentially lead to heightened global uncertainty. Yet, the policy maker added that the US economy could warrant a rate hike when the Federal Open Market Committee meets on June 14-15. Lockhart said the market seemed to be underestimating the odds of a rate lift in June. Investors currently only assign a 12% chance of such a move, according to pricing in interest rate futures contracts. Lockhart said two rate hikes this year are certainly possible. Lockhart is not a voting member of the Fed's FOMC, but his view is seen as a bellwether for what the majority on the central bank is thinking. Also, San Francisco Fed President John Williams said he is optimistic about the US economy and was giving little weight to the slowdown in first quarter gross domestic product. However, Williams added that he would support an interest rate hike in June as long as he sees sturdy progress on the economy, inflation and jobs. Fed officials left their target range for the benchmark policy rate steady at 0.25% to 0.5% when they met last week, saying that they will "closely monitor" the world situation.
The UK manufacturing sector encountered a surprise contraction in April that reflected in the PMI, as it entered negative territory for the first time in 4 years, plummeting under the 50 point mark to show 49.2 points. The indicator missed the initial investor forecast of 51.2 and fuelled concerns by showing a drop in comparison to March. Worries about industry health were amplified by the Markit Economics claim that output in the manufacturing sector is shrinking in a scale of 1% per quarter, and around 20 000 jobs have already been lost in the last three months. Uncertainty over the outcome of the EU referendum can spawn further effects on Britain's currency and economy. While recent polls have indicated a positive trend in regard to remaining part of the EU, both global and domestic organizations warn that a vote in favour of Brexit can potentially prompt an economic downturn and imbalances. A combination of uncertainty generating factors both domestically and globally are likely to contribute to a slowdown for the industry in the second quarter. The UK economy has been experiencing a slowdown as first-quarter data showed economic growth of just 0.4%, with the service, industrial and manufacturing sectors correspondingly displaying signs of weakness. The same trend applied for exports as market conditions weakened.
Upcoming fundamentals: EU data to confirm expanding services sector
Contrary to manufacturing industry, the services sector in the Euro zone seems to be growing steadily. Today we are awaiting the final April PMI numbers for Spain, Italy, France and Germany. The figures will begin kicking off at 7:15 GMT for Spain, while the pan-Euro area's numbers will be out at 8:00 GMT. Another piece of European data is due at 9:00 GMT when retail sales are expected to show a 0.1% drop in March on a monthly basis and a 2.6% advance year-on-year. Meanwhile, today investors are going to get the first insight into US employment situation in April when ADP statistics is released at 12:15 GMT. Average forecast says the ADP will report an increase of 195,000 jobs last month, down slightly from 200,000 in March.
EUR/USD plunges after testing 1.16
First part of Tuesday was distinctly bullish for the Euro, as this currency skyrocketed to another multi-month high above the 1.16 mark. However, as soon as it neared the weekly and monthly R2 resistance lines at 1.1619/26 the bears have finally decided to develop momentum. It turned to be successful, because EUR/USD closed the session with a 38-pip loss just under the 1.15 mark. If the bearish impetus is sustained, we are likely to observe a quick return down to the weekly and monthly pivots at 1.1376. However, while trading above them the outlook will remain largely optimistic.Daily chart
The spot is back below the October 2015 high at 1.1485. Risks resume skewing back to the downside, following US Dollar's strength in the wake of hawkish comments among members of FOMC. In case the broader retreat kicks off, we are going to watch the 200-hour SMA in the 1H chart, as this upward-sloping line, currently at 1.1365, will use each and every opportunity to dampen bearish pressure. EUR/USD has hovered above the SMA since April 26.
Hourly chart
SWFX sentiment recovers as orders diminish
67.60% of OANDA clients are now betting the EUR/USD currency pair will slump in value, up from about 65% yesterday. Exactly the same percentage of all SAXO Bank traders is maintaining the same view on the matter.
Spreads (avg,pip) / Trading volume / Volatility
Dukascopy Community members are divided on this week's perspectives of EUR/USD
Dukascopy Community members are divided equally in their expectations, as a consensus forecast stands at 1.1370. Still, the level is more than 70 pips above the last week's average price, meaning the pair continues trading in a strong uptrend.
Both Daytrader21 and Jignesh are bearish with respect to the common European currency. Daytrader21 suggests that "the ECB's commitment to its aggressive easing stance, coupled with a resumption in the US Dollar bullish trend, should keep EUR/USD under pressure in coming week. I am looking for a retest of the 1.1080 support level". Alongside, Jignesh is suggesting the following: "Last week's price action gave us a clue for a bullish cycle in the USD. [...] Though the pair remains in a bullish cycle for 2016, the Dollar Index is showing USD strength, which translates into a correction of the pair that can last at least over the next week or two."