Eur/usd - page 501
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EUR/USD: Staying Short: 4 Macro Reasons Plus Technicals
We lower our 3m EURUSD forecast to 1.05 from 1.10.
Rationale:
1. Relative monetary policy: The 20 October ECB meeting was interpreted as leaving open room for continued easy monetary policy, with no sudden tapering shocks seemingly in the pipeline. This contrasts with the apparent policy shifts underway in Japan and the US. Recent comments from ex-BOJ board member Shirai helped solidify a growing market suspicion that September's BOJ move to cap rates was a first step towards winding down asset purchases in Japan. And in the US, the market seems willing to price in a December Fed rate hike despite suggestions from key officials like Yellen that they are still willing to look at the US economy glass as half empty. It seems rising inflation expectations and a tightening US labor market are enough to convince investors to continue leaning in favor of US rates trending higher.
2. Politics: One reason we have been hesitant in recent months to be too USD bullish vs. defensive currencies like EUR and JPY was the risk that the US election leads to a populist victory and USD-negative uncertainty. With the likelihood now high that the US political leadership will remain conventional after the election, we are prepared to lower the required risk premium for the USD now. As for the EUR, we have argued many times that where GBP goes, eventually EUR has to follow. Quite simply, we do not expect the triggering of Article 50 combined with French, Dutch and German elections in 2017 to leave the currency unscathed. Political risks are diverging again, in favor of USD and against EUR.
3. Market reaction: EUR has underperformed all key G10 currencies so far in October with the exception of GBP. It has also underperformed a variety of EM currencies against a backdrop of seemingly "risk-on" markets, with crosses like EURAUD pushing through one-year lows. European equities, however, seem to be welcoming this, including bank stocks. In much the same way as UK equities have responded well to a lower GBP, the natural order of the moment appears to be that a lower EUR is both reasonable and beneficial.
4. Positioning: Short EURUSD positioning is moderate at the moment, compared to early 2015.
5. Technicals: Technically EURUSD’s breakdown below important support at 1.0952/13 – the 61.8% retracement of the December 2015/May 2016 rise and the June/July 2016 price lows – has reinforced an existing top and our bearish view. We look for further downside to 1.0826/22 next, then the January 2016 low at 1.0711. The bigger support area shows at the low end of the converging range and the December 2015 major low at 1.0602/0524, which we would look to hold. However, should the 1.0524 level be removed at any stage, this would suggest the broader range is being solved lower again for the March 2015 low at 1.0458. Beneath the latter level can open up a move to parity with long-term support showing at 1.0109/.9901 – a cluster of retracement levels and potential uptrend from the February 1985 low.
*As a technical based-trade, CS maintains a short EUR/USD position targeting 1.0615.
source
The euro marked slight decline against the US dollar on Thursday. EUR/USD was trading within narrow range and remained at same levels fromt his week. Support is located at 1.0849 and 1.0803. Resistance is now placed at 1.1040 and 1.1094.
The consolidation in EUR/USD continues to be present in the currency's early European trading today. The pair is now 1.0904 after yesterday's bullish attempt to climb higher failed due to not enough strength in yesterday's US data.
Durable Goods Orders turned out to be non-event and market participants witnessed only a slight reaction to the upside at 1.0942. After the initial boost, the pair lost momentum and fell to pre-event levels. Today is the fifth consecutive day of lite volume trading for the pair, as it has been holding to levels around 1.09 since the beginning of the week.
However, we have one more chance to see volatility today with the latest high impact US GDP data. Expectations are that the US GDP for Q3 will be 2.4%, prior to 1.4%.
If the data is positive, then we can expect a sharp drop in the pair that could lead us to levels around 1.0820. On the other hand, a disappointing report would help bulls to gain control and push prices higher.
Yesterday the EURUSD tried to rally but found enough resistance once again at the 10-day moving average giving back to the market all of its gains and closed near the low of the day, however managed to close within previous day range, which suggests being slightly on the bearish side of neutral.
The pair continues to trade well below the 10, 50 and 200-day moving averages that should act as dynamic resistances.
The key levels to watch are: a daily resistance at 1.1097, the 10-day moving average at 1.0920 (resistance), a daily support at 1.0900 and other daily support at 1.0819.
October Eurozone Economic Sentiment Hits 2016 High
The Eurozone economic sentiment index, published by the European Commission, strengthened to 106.3 for October from 104.9 the previous month. This was significantly above expectations and the highest reading since December 2015, which will bolster confidence in the outlook.
There was an improvement in industrial confidence of 1.2 with increased optimism surrounding production expectations and order books.
Confidence in the services sector improved at a faster pace with an increase of 2.0, although this primarily reflected improved conditions over the past few months rather than optimism surrounding the outlook.
Consumer confidence increased only marginally with expectations of improved financial conditions offset by concerns over unemployment.
There was increased confidence in the construction sector, while a notable deterioration in the financial sector was noted.
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EUR/USD forecast for the week of October 31, 2016
The EUR/USD pair had a slightly positive week during the course of the last several sessions, but we still see the 1.10 level above as being resistive. With this being the case, it’s very likely that sellers will return every time we rally, but I think it’s going to be off of short-term time frames and therefore I don’t really see any opportunities to trade the EUR/USD pair from the longer-term perspective. Quite frankly, there’s just simply far too much in the way of support and resistance at various levels to make it worth the long-term trader’s time.
EUR/USD Weekly Forecast October 31-November 4
EUR/USD formed a base in the past week and posted an advance to erase losses from the prior week to snap a three-week losing streak. The week had less to do with risk events on the economic calendar as market participants focused on the week ahead. The upcoming week will be volatile. The economic calendar shows a number of high-impact data releases, including the last Federal Reserve rate decision and statement ahead of the much anticipated December meeting where markets at this point show little doubt that a rate hike will materialize.
Among the central banks, the Fed has faced many hurdles in tightening policy even the slightest amount. Talks of entering a rate hike cycle initially surfaced in early 2014, while there had been promises at the start of the year of four rate increases in 2016, none have materialized. There has been a common theme of the central bank giving some indication of moving ahead only to reverse course as circumstances turned unfavorable. Market participants will view this as a reluctance from the Fed to raise rates, casting some doubt in the week ahead whether positive developments will emerge from the FOMC statement.
A parallel has developed over the past few months that can be compared to the rate hike in December 2015. The Fed initially hinted at a pending rate hike in October and provided a heads up in November to eventually move ahead in December. Similar shifts have been seen in Fed communication this year since August.
In the upcoming week, the FOMC statement stands to provide a green light for a December rate increase. If it were any other central bank, the markets would openly accept the path the bank has communicated. While the Fed has skewed the risk to hold assets favoring a rate increase with their drawn out path of normalization, the risk to bet against the central bank is certainly not more appealing.
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The single currency marked significant growth on Friday amid positive data on consumer prices in Germany and the political upheavals of the United States. EUR/USD is up 88 pips and reached its highest value for the last two weeks at 1.0982. Technically the bulls remain in a leading position, which will be confirmed by the breakthrough of 100-day moving average at 1.1000.