Euro: USD/EUR (EUR=X) Treading Water Through January
The Euro has had a modestly positive start to January. Attention remains away from the Eurozone thanks to shifts in key macro themes, namely the US-China trade war Phase 1 deal, US-Iranian geopolitical tensions, the Brexit deadline, and now the Chinese coronavirus. The Euro has gained ground against four currencies while losing ground against three thus far. EUR/USD is the worst performing pair, down by -1.08%, while EUR/AUD and EUR/NZD are leading the way higher, up by 1.35% and 0.97%, respectively.
Eurozone Economic Data Continues to Improve
Exogenous influences aside, Euro strength at the start of 2020 has come in hand with an ongoing improvement in domestic Eurozone economic conditions. Eurozone economic data has improved in the past few weeks, at least when trying to measure releases relative to expectations. The Citi Economic Surprise Index for the Eurozone, a gauge of economic data momentum, currently sits at 45.1 today relative to 25.5 one-month ago on December 24 and -55.9 on October 17.
Eurozone Inflation Expectations Nudging Higher
The Eurozone is faced with a situation where low growth and inflation expectations are keeping the ECB’s bias pointed towards easing. Yet new ECB President Christine Lagarde has pledged that the January meeting will commence the ECB’s formal policy review, which will provide a new course of policymakers have unanimity was broken by outgoing President Mario Draghi.
The relationship between Eurozone 5y5y inflation swap forwards and Brent oil prices has been realigning since the start of Q4’19. The current 50-day correlation between Eurozone inflation expectations and Brent oil prices has increased from 0.46 on October 1 to 0.67 today. Weakness in short-term correlations (5-day, 20-day) have been exacerbated by the sharp pullback in energy prices amid deescalating US-Iranian geopolitical tensions.
ECB Review Period Keeps Rate Cuts at Bay
The January ECB meeting scheduled for later this week may largely come and go without much fanfare. After all, the ECB has entered 2020 in a holding period, thanks to new ECB President Lagarde using the early months of her tenure to find consensus within the Governing Council. Prior unanimity among policymakers waslost after former ECB President Draghi forced his easing package into policy at the September ECB meeting.
As policymakers search for a new consensus, it seems likely that the ECB will remain on the sidelines through much of 2020 – or at least until the ECB’s policy review concludes. Two key issues are at hand: first, will the ECB follow Sweden’s Riksbank and end its negative interest rate policy; and two, will the ECB change its inflation target after missing its goal every year since 2013.
According to Eurozone overnight index swaps, traders are convinced that the period of recalibration by new ECB President Lagarde will take a very long time: there is only a 6% chance of a rate move through December 2020.
Overall, the bias in prices is: Sideways.
The projected upper bound is: 1.12.
The projected lower bound is: 1.10.
The projected closing price is: 1.11.
A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 28 white candles and 21 black candles for a net of 7 white candles.
A long upper shadow occurred. This is typically a bearish signal (particularly when it occurs near a high price level, at resistance level, or when the security is overbought).
A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 13.4757. This is an oversold reading. However, a signal is not generated until the Oscillator crosses above 20 The last signal was a buy 6 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 44.04. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 100 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -94. This is not a topping or bottoming area. The last signal was a buy 0 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 9 period(s) ago.
Rex Takasugi – TD Profile
FOREX EUR= closed down -0.000 at 1.109. Volume was 9% below average (neutral) and Bollinger Bands were 12% narrower than normal.
Open High Low Close Volume___
1.109 1.112 1.108 1.109 58,345
Short Term: Oversold
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period 50-period 200-period
Close: 1.11 1.11 1.11
Volatility: 4 4 5
Volume: 65,815 58,086 77,080
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
FOREX EUR= is currently 0.4% below its 200-period moving average and is in an downward trend. Volatility is relatively normal as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of EUR= at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on EUR= and have had this outlook for the last 2 periods.
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