Forex Market: EUR/USD trading forecast for Monday

Friday’s trade saw EUR/USD within the range of 1.1113-1.1374. The daily low has also been the lowest level since September 9th 2003, when a low of 1.1055 was recorded. The pair closed at 1.1208, losing 1.39% on a daily basis. The cross fell 3.12% for the whole week, which marked a sixth consecutive weekly loss.

Fundamentals

Euro area

German Business Climate Index

Business climate in Germany probably continued to improve in January, with the respective gauge rising to 107.4 from 105.5 in December. If so, this would be the highest index reading since July 2014, when the indicator came in at 108.0.

The IFO Business Climate Index reflects entrepreneurs’ sentiment in regard to current business situation and their expectations for the next six months. The index is based on a survey, conducted by phone and encompassing 7 000 companies, that operate in sectors such as manufacturing, construction, wholesaling and retailing industry. The Business Climate Balance represents the difference between the percentage share of respondents that are optimistic and the share of respondents that are pessimistic. The balance can fluctuate between -100, which suggests all responding companies assess their situation as poor and expect business conditions to deteriorate, and +100, which suggests all responding companies assess their situation as good and expect an improvement in business conditions. In order to calculate the IFO Business Climate Index, the Balance is normalized to the average of a base year, which currently is 2005.

The IFO Business Climate Index is comprised by two equally-weighted sub-indexes – a gauge of expectations and a gauge of current assessment. The IFO expectations index probably rose to 102.5 in January from 101.1 in December. If so, this would be the highest level since July 2014, when it was reported at 103.4. The IFO current assessment index probably advanced to 110.7 in the current month from 110.0 in December and November. If so, this would be the highest index value since August 2014. In case any of the gauges registered a larger-than-projected increase, this might have a bullish effect on the common currency.

The CESifo Group is to release the official numbers at 9:00 GMT on Monday.

ECB stimulus

On Thursday the ECB announced a wide-scale bond-purchasing program, which includes monthly purchases of EUR 60 billion in private and public debt until September 2016. Market expectations pointed to a monthly pace of EUR 50 billion.

”The downside for the euro is substantial,” Jurgen Odenius, chief economist at Prudential Financial Inc.’s fixed-income division, said by phone from Newark, New Jersey, on Friday, cited by Bloomberg. ”The channel through which Draghi’s hoping to achieve an increase in inflation is through a weaker euro.”

Another event, that could mount additional selling pressure on the common currency, is the Greek vote today, as it will decide whether the country will continue sticking to the austerity policy, which guarantees a financial lifeline from creditors.

Federal Reserve rate hike probability

Traders saw a 51% probability that the Federal Reserve Bank may raise the federal funds rate by its October meeting, according to futures data. At the end of 2014 the chance of such a move was at 72%. The Fed kept the target for its benchmark rate at 0% to 0.25% at the past 47 consecutive meetings.

EUR/USD bets

Hedge funds and other institutional players increased their bets, that EUR/USD will depreciate, to the most since June 2012. The difference in the number of bets on a drop compared to bets on a gain (the net shorts) was 180 730 on January 20th, up from 167 851 a week ago, according to data by the Commodity Futures Trading Commission.

Pivot Points

According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 1.1232. In case EUR/USD manages to breach the first resistance level at 1.1350, it will probably continue up to test 1.1493. In case the second key resistance is broken, the pair will probably attempt to advance to 1.1611.

If EUR/USD manages to breach the first key support at 1.1089, it will probably continue to slide and test 1.0971. With this second key support broken, the movement to the downside will probably continue to 1.0828.

The mid-Pivot levels for Monday are as follows: M1 – 1.0900, M2 – 1.1030, M3 – 1.1161, M4 – 1.1291, M5 – 1.1422, M6 – 1.1552.

In weekly terms, the central pivot point is at 1.1332. The three key resistance levels are as follows: R1 – 1.1551, R2 – 1.1894, R3 – 1.2113. The three key support levels are: S1 – 1.0989, S2 – 1.0770, S3 – 1.0427.