EUR/USD unchanged after volatile session

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Source: Dukascopy Bank SA
  • Bullish portion remains flat for a second day at 39%
  • Orders recovered quickly, as they are repeatedly betting on EUR/USD's gains
  • Janet Yellen to testify for a second day before US Senate
  • Notwithstanding EUR/USD's rally, daily technical indicators continue projecting more growth
  • Economic events to watch over the next 24 hours: US Unemployment Claims (Feb 6); Fed Chair Yellen Testifies (Day 2); Eurogroup Meetings

© Dukascopy Bank SA
Wednesday saw the Japanese Yen skyrocketing by 1.54% at the expense on the Euro, as the most popular haven currency experiences an inflow of funds due to greater global economic, financial and central bank uncertainty. Interestingly, US Dollar was completely flat yesterday despite booking some massive gains earlier in the session after comments made by the Fed Chief Janet Yellen. She expressed FOMC's concerns about tighter financial conditions that have been in place since early 2016, but added that US labour market remains strong enough in order to withstand risks coming from abroad. Yellen left open the possibility of a March rate increase, even though futures markets give a scanty 2% probability to this event. Commodity currencies spent the trading session in a mixed manner, with Canadian Dollar tumbling and others (AUD, NZD) growing versus the single currency. The Pound Sterling has had a surprisingly positive day. With EUR/GBP sinking by 0.35%, British fundamentals came out sharply worse than anticipated. Manufacturing and industrial production slumped in December, while the NIESR institute lowered its UK GDP projection to 0.4% for the three months through January.

Industrial production data from France and Italy disappointed. French industrial output dropped 1.6% in December, following a negative reading in November. Analysts, however, had expected a marginal increase of 0.1%. Moreover, manufacturing production declined 0.8% in December, whereas economists had predicted a 0.4% rise. In annual terms, French industrial output decreased 0.7%, compared with a 2.8% gain in November. Preliminary GDP data showed a stable growth in the final quarter of the year, while the Bank of France expects the Euro zone's second biggest economy to accelerate the pace of growth in the first quarter of 2016. France's economy expanded 0.2% on a quarterly basis in the three months through December, while on an annual basis GDP rose 1.3%. Meanwhile, industrial production in Italy, the Euro zone's third biggest, dipped 0.7% in December, following a negative reading in the preceding month. Analysts had anticipated the reading to pick up 0.2%. On an annual basis, output of Italian factories decreased 1.0% in the reported month, compared with a revised 1.1% gain in November. The Italian economy posted mixed data over the last two months, with both PMI macro indicators showing a weak performance, amid upbeat consumer inflation and an improving jobless rate.

Britain's industrial production dropped more than expected in the fourth quarter as the manufacturing sector continued to drag down the UK's economy. Total production output declined 0.5% in the December quarter, compared with the three month-period ended September. Industrial production plunged 1.1% on month in December as warm winter weather forced a steep decrease in energy output and the low oil price hurt North Sea oil producers. It was pulled down by a 4% plunge in mining and quarrying sector. Manufacturing production, which accounts for around 10% of GDP, contracted 1.7% in 2015 compared with the previous year, remaining 6.5% below the total it reached before the 2008 crisis. Measured on a monthly basis, manufacturing output declined 0.2% in December, compared with analysts' expectations for a 0.1% gain. According to the Office for National Statistics, total production for the whole of 2015 was 1% higher than in the preceding year. Weak economic data have consistently urged investors to push back the date when they expect the Bank of England to begin hiking interest rates. Market derivative instruments now price in a lift as late as mid-2019. According to the preliminary data of UK gross domestic product, released in January, the UK economy grew 0.5% between October and December, faster than the third quarter's 0.4% rate of growth.

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Upcoming fundamentals: Yellen's second day in Congress



The greatest deal of market reaction could have already been seen on Wednesday, when the Federal Reserve Chair Janet Yellen testified before US lawmakers from the House Financial Services Committee. After expressing concerns about market turmoil, it is unlikely she is going to say something different today. Despite that, this economic event remains the most closely monitored today, just because other fundamental data carries a much lower level of importance for financial markets. Today Ms. Yellen speaks to the Senate Banking Committee at 15:00 GMT.


EUR/USD unchanged after volatile session

EUR/USD was turbulent on Wednesday, with intraday dips prolonging down to the 1.1160 mark. However, by daily close the bulls reclaimed leadership and sent the pair back to 1.1290, meaning they were uncertain about comments made by the Fed Chair Janet Yellen. Today we continue watching the first weekly resistance at 1.1330, followed by the upper Bollinger band at 1.1394. Success here will have major bullish implications for EUR/USD, which could surge up to 1.1460 (Sep high) in the next few days. Alongside, the key long-term support is offered by 200/20-day SMAs and the weekly PP at 1.1072/53.

Daily chart
© Dukascopy Bank SA

Cross has not confirmed the bullish channel yet, meaning our expectations for the nearest future are largely positive. The base scenario assumes a growth in the direction of 1.1460/95, namely September and October highs of the previous year. From there, however, another down-leg is highly likely.

Hourly chart
© Dukascopy Bank SA

Traders see EUR/USD even higher in the future

Bullish market portion on the SWFX market has stalled at 39% over the previous trading session. At the same time, pending orders have partly recovered losses that had occurred back on Tuesday. Now more than 50% of them are set to acquire the 19-state currency against the Greenback. Such a case could provide an upward momentum to the overall sentiment in the nearest future, in case the most traded FX currency pair continues to appreciate.

In the meantime, OANDA and SAXO Bank traders are holding the wait-and-see mode for the time being, as they seem to be waiting for more volatile conditions in order to change their mind on perspectives of the pair. OANDA clients are 62.5% bearish on the Euro and the same opinion is maintained by about 67% of SAXO Bank market participants.












Spreads (avg,pip) / Trading volume / Volatility




Dukascopy Community members are bullish on the Euro in 71% of all cases

© Dukascopy Bank SA

The odds are growing in favour of the EUR/USD pair's continuous advance this week. Now almost three out of four Community members see the cross higher by Friday, while the mean projection breaches the round level of 1.12. Adding to that, more than 72% of all estimates are falling into the range between 1.10 and 1.1450, meaning there is a high probability of uplifted volatility and wide-range trading.


As for some specific forecasts among traders, khalidamassi says that "EUR/USD seems to have finally waked up after breaking the range of the last three months. Until now the depth of a recovery is not known due to the expected ECB rate cut next March, but 1.1500 is on the way." On the other hand, rokasltu claims that "EUR/USD skyrocketed last week. But, taking into account possible actions from the ECB to boost inflation, in my opinion pair will gradually move down."

Average forecast says EUR/USD will trade at 1.10 by May

Meanwhile, traders, who were asked regarding their longer-term views on EUR/USD between Jan 11 and Feb 11 expect, on average, to see the currency pair around 1.10 by the end of May. Though the majority of participants, namely 65% (+1%) of them, believe the exchange rate will be generally below 1.12 in ninety days, with 38% (+2%) alone seeing it below 1.08. Alongside, 26% (-1%) of those surveyed reckon the price will trade in the range between 1.12 and 1.18 on May 31.

© Dukascopy Bank SA

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