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Trading The ECB: the most likely scenario, key levels and EUR/USD forecasts (based on efxnews article)

As ECB will take center stage this week so Barclays Capital made some fundamental and technical forecasts concerning EUR/USD.

Fundamental Forecast.

  • "An increasingly cautious Fed, coupled with an uncertain EM outlook, has benefited the EUR recently, contributing to tighter euro area financial conditions. Coupled with the recent drop in inflation expectations, such tightening has significantly raised expectations for additional ECB stimulus, making this week’s ECB meeting (Thursday) the market’s key focus."
  • "The most likely scenario, in our view, is a continuation of the dovish rhetoric, followed by the announcement of a QE time extension in December, when the ECB updates its Q4 15 staff economic forecasts."
  • "Moreover, recent price action in front-end euro rates suggests that the market is pricing a non-zero probability for a further deposit rate cut. While we do not rule out this possibility, we do not think it is an option for the next two meetings. However, we estimate that the rates market is already pricing a 20% likelihood of a 10bp deposit rate cut before year-end. In our view, a likely trigger for a rate cut would be a further material appreciation of the euro, possibly related to more signs that the Fed will remain on hold for longer. Although a measure of last resort, such policy action would be the most effective in weakening the EUR."
  • "We expect more monetary easing before year-end. We believe that the details and magnitude matter for the price action of the EUR, as an extension and increase in the QE program would probably have less of an effect than an outright cut in the deposit rate. We think that it is just a matter of time until the ECB decides to drive EURUSD lower."
  • "We believe that amid a lack of policy options, the ECB will step in in the months to come to try to fulfill its inflation mandate. As such, we expect further EUR downside. Our view should be supported by further USD strength, as monetary policy expectations in the US seem too benign compared with the healthy dynamics of internal demand in the US."


Technical Forecast.

  • "We recommend buying a 3m 25delta EURUSD risk-reversal (EUR put/USD call) for a cost of 13.2bp (strikes: 1.1004, 1.1737, spot ref: 1.1357, atm vol: 9.19%), which offers a compelling risk-reward should EURUSD break below its recent range."
  • "We maintain a short EUR/USD from 1.1278 targeting a move to 1.0460, with a stop at 1.1562."
 

Trading setup for EUR/USD by Barclays Capital (based on efxnews article)

Barclays Capital made a technical forecast for EUR/USD explaining their position opened with key targets:

  • "The move below 1.1335 encourages our bearish view. Our initial targets are near 1.1260. A move below 1.1260 would open our next targets in the 1.1105/1.1085 area."

So, they opened sell trade at 1.1335 with 1.1260 as an initial target having re-enter to 1.1105/1.1085 targets in case the price will move to below 1.1260. If we see from the chart above - there are the following targets for this pair:

  • 1.1086 as the nearest bearish target with 1.0807 and 1.0607 as the next bearish levels;
  • 1.1713 as the nearest bullish target with 1.1956 as the next bearish level.

Thus, if the price breaks 1.1086 support level from above to below so the next profit targets will be 1.0807, if the price breaks 1.1713 resistance level from below to above so profit level will be 1.1956.

 

EUR/USD - in view of ECB meeting (based on efxnews article)

United Overseas Bank made a fundamental forecast concerning ECB’s meeting later today:

  • "With daily MACD heading lower and with internal momentum showing signs of weakness, the bias appears to be greater on the downside. However, 1.1300 is a major support and this level has to break before a sustained down-move in EUR can be expected in the coming days."
  • "That said, the next support is not that far away at 1.1240 and being a cluster of supports, this is clearly a major level. The next significant support below 1.1240 is closer to 1.1085."
  • "Overall, a move to 1.1415/20 resistance will not be surprising but at this stage, 1.1460 appears to be strong enough to contain any EUR strength in the next couple of days."


As we see from the image above - the nearest support level is 1.1305 located on the border between the primary bearish and the primary bullish on the chart, and if this level is going to be broken so we may see the bearish reversal to be started by the daily price for example.

 

Post ECB rate decision event review - BNP Paribas (based on efxnews article)

The ECB left policy unchanged and Mario Draghi delivered the maximum level of dovishness at the press conference.

  • "Specifically, he said that the degree of policy accommodation will be re-examined in December and that all policy instruments are being considered, including a further cut in the deposit rate. He also said the ECB is “vigilant” on inflation – a key word that in the past has been used to indicate imminent action."
  • "The bottom line is that the December meeting now appears more a question of ‘how’, rather than ‘whether’, the ECB will ease policy further."
  • For the outlook for the EUR, we notes that the mention of the possibility of a further cut in the deposit rate was important as this is the policy tool that would probably have the most direct impact on eurozone front-end rates."
  • "However, we would also highlight the role of asset purchases for real rates, which Mr Draghi mentioned specifically once again. A key driver of EUR weakness early this year was a consistent rise in inflation expectations which drove real rates further into negative territory and led to portfolio capital outflows. If these dynamics are restored, the EUR should return to a weakening path."


  • "EUR shorts were largely unwound in Q2-Q3 and EUR positioning has turned the most bullish since 2013. After ECB meeting the market is likely to be biased to rebuild short positions, selling into any EUR rallies."
  • "We maintain EUR/USD short from 1.1450 targeting 1.09 and EUR/GBP short from 0.7395 targeting 0.70."
 

EUR/USD: levels and targets by Societe Generale (based on efxnews article)

Societe Generale made a weekly technical forecast concerning the EUR/USD:

  • "Considering a largely negative close this week, EUR/USD will form an evening star, a candlestick pattern that signals possibility of down move. It is noteworthy that this evening star coupled with a shooting star back in August gives bearish connotations."
  • "As such, SocGen thinks that the current break below 1.1085 means a retest of multi decadal channel support at 1.05/1.04 with intermittent targets at 1.0940 and May lows of 1.08."
  • "This massive channel remains the decisive level for next leg of downtrend as a move below 1.05/1.04 will confirm that the ongoing correction is not just a retracement of the up move since 2000 but in fact of the whole up cycle since the 1980s."


As we see from the chart above - the nearest support level is 1.1086, and it is going to be crossed on the weekly open bar. The next support levels as the next bearish taregts are  1.0807 and 1.0607. And the 'final' taregt si 1.0461.

 

EUR/USD Forecast Oct. 26-30 (based on forexcrunch article)

EUR/USD totally collapsed after Draghi hit it hard. Will it be able to stage a recovery or does it have lots more to fall from here? An important German survey and inflation numbers stand out. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.

Expectations were high for the ECB meeting and Draghi easily leaped over them, over-delivering on thick hints: from expanding and extending QE through opening the door for a rate cut and also some skills, such as the use of the word “vigilant”. This resulted in a crash worth over 300 pips that lasted well over a day and pierced through uptrend support. The dollar also enjoyed some back wind from better home sales and jobless claims. Good euro-zone PMIs only temporarily helped the euro.

  1. Bundesbank Monthly Report: Monday, delayed from last week. The German central bank publishes a monthly report about the state of the economy, employment and inflation. The most interesting part would be an assessment of the VW scandal to the German economy. The car maker is not only a symbol of German industry but also a huge employer in Germany. Also other companies are impacted by the supply chain.
  2. German Ifo Business Climate: Monday, 9:00. Germany’s No. 1 Think Tank is expected to show a small decline in business confidence, from 108.5 points in September to 108.1 now. The wide survey will also incorporate the Chinese slowdown in addition to the Volkswagen crisis. The ZEW figure already missed expectations.
  3. ECB Monetary Data: Tuesday, 9:00. The ECB’s monetary stimulus did succeed in pushing the money in circulation, M3 Money Supply, to higher levels, with an annual expansion of 4.8% in August. A rise to 5% is on the cards now. Private loans are growing at a rate of 1% as of August and September is expected to see an acceleration to 1.1%.
  4. German Import Prices: Wednesday, 7:00. Import prices are falling sharply, and this feeds into inflation figures. A big drop of 1.5% was seen in August and a more moderate slide of 0.2% is on the cards now.
  5. German GfK Consumer Climate: Wednesday, 7:00. This survey of 2000 consumers has topped out a few months ago above the 10 level. From 9.6 points in September, a level of 9.5 is predicted now.
  6. German CPI: Thursday, the various German states throughout the European morning and the final number at 13:00. The early number for October is predicted to show a slide of 0.1% in prices, following a bigger than expected dip of 0.2% in September m/m. Even Germany, that is enjoying solid growth, is experiencing falls in prices.
  7. Spanish CPI: Thursday, 8:00. The euro-zone’s fourth largest economy has enjoyed strong growth but this came on top of deflation. After a big year over year drop of 0.9% in September, an annual level of -0.6% is on the cards, well below the recent euro-zone levels.
  8. German Unemployment Change: Thursday, 8:55. The zone’s locomotive has seen a small rise of 2K in the number of unemployed. A drop of 4K is on the cards. Despite the disappointing rise last time, Germany is enjoying a low unemployment rate.
  9. German Retail Sales: Friday, 7:00. Consumers were less busy in August: a drop of 0.4% was recorded in the volume of sales. A bounce back of +0.4% is on the cards now. With exports to China slumping, internal demand is key to the economy.
  10. French Consumer Spending: Friday, 7:45. The French version of retail sales has been flat in August. A recovery is expected now with +0.2%.
  11. Spanish Flash GDP: Friday, 8:00. Spain’s growth has been a success story. The early release of this figure (in comparison with other EZ countries) makes it more significant. After growing 1% in Q2, the zone’s fourth largest economy is expected to report a similar growth rate of 0.9% q/q.
  12. Inflation data: Friday, 10:00. The euro-zone slipped back to deflation in September, with -0.1% and this was a key reason for Draghi’s strong words. A return to a flat 0% is on the cards now. Core inflation is doing better with +0.9% and the same figure is expected here. Note the ECB’s inflation target is “2% or a bit below”.
  13. Unemployment rate: Friday, 10:00. At 11%, the unemployment in the euro-zone is not encouraging. While it did slip from higher levels, it isn’t going down fast enough. No change is expected.
 

EURUSD Intra-Day Technical Analysis - stop near key support for the bearish breakdown to be continuing (based on efxnews article)

Skandinaviska Enskilda Banken made intraday technical forecast for EUR/USD pair estimated new support level around 1.08 with stop loss at about 1.15:

"With additional selling on Friday prices broke and closed below the March support line, the floor of the large bear flag. The break now suggests that we have left the seven months long correction having resumed the longer term underlying bear trend. The next key support is 1.0869- 1.0808. Short term there is however a growing risk for at least a minor reaction higher. Lower the stop from 1.1510 to 1.1306."


From the technical point of view - the intra-day price was stopped by 1.0996 support level on the way to the bearish breakout to be continuing, and reversal resistance level is 1.1339.

 

Trading ideas for EUR/USD by UBS Group (based on efxnews article)

UBS Group made a weekly technical forecast making the trading recommendations for the EUR/USD pair related for the trading.

EURUSD:

  • "We are struggling to see value in shorts."
  • "Sell at 1.1060, adding at 1.1085, with a stop at 1.1110."


The price is trading to be below Ichimoku cloud for the crossing 23.6% Fibo support level at 1.1021 from above to below for the bearish trend to be continuing. The nearest bearish target is Fibo support level at 1.0811, and if the price crosses this target so we may see the good bearish breakdown up to 1.04/1.05.

If the price will break 1.1021 support level on close W1 bar so the primary bearish will be continuing up to 1.0811 as the next target.
If the price will break 1.0811 support level on close W1 bar so we may see good breakdown within the primary bearish market condition.
If not so the price will be ranging within the levels.

 

EUR/USD: Levels & Targets - UOB (based on efxnews article)

EURUSD traded sideways as expected, notes UOB Grou:

  • "Market appears to be biding time ahead of FOMC and this pair is expected to stay within 1.1000 and 1.1100 for now. In view of the weak mid-term outlook, the risk appears to be greater on the downside."
  • "The key level on the upside remains at 1.1140 as a break above this level would be a strong indication that we have seen a short-term low."
 

Technical Ideas for EUR/USD by SEB (based on efxnews article)

Skandinaviska Enskilda Banken made intraday technical forecast for EUR/USD pair estimated new support level at 1.0896:

"The rejection from the recently broken flag floor and the break below the support was exactly what was needed to trigger the next part of the decline. Selling will likely take short pause arriving at 1.0896 but probably not for long. The current wave three should stretch out for the 1.05-area before any more profound reaction likely to occur."


From the technical point of view - the intra-day price is on bearish ranging within 1.1095 resistance and 1.0896 support levels. If support level will be broken from above to below so the bearish trend will be continuing, otherwise - ranging.
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