Talking Points:
- EUR/USD capped below the 1.12 figure after forming a daily bearish pattern
- Euro-Zone GDP and US Retail Sales are in focus ahead, but subdued volatility may prevail
- 30-Day ATR readings suggests EUR/USD volatility is at its lowest level since September 2014
The EUR/USD is trading sideways after seeing a sharp fall on last Friday’s upbeat US NFPs. The pair formed a daily “Bearish Engulfing” pattern at an area of resistance, which saw a move lower that found some support below the 1.11 figure, but at the moment price is still contained below the 1.12 area.
Looking ahead, Euro-Zone 2Q GDP figures and US Retails Sales take center stage on possible influence on monetary policy. However, it remains to be seen if the data could shake things up in this subdued volatility period.
Against this backdrop we will form our outlook and look to find short term trading opportunities using different tools such as the Grid Sight Index (GSI) indicator.
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Euro-Zone 2Q GDP figures headline the economic docket following the German and Italian numbers. The year-on-year figure is expected to print 1.6%, unchanged from the first reading. The German figures didn’t see the EUR/USD move in any significant manner initially, despite a beat to expectations. If the German numbers are an indication of things to come, the release may have a limited reaction, further assisted by the fact that those are second readings and have less significance.
Indeed, the Euro does appear “driver-less” at the moment, with the market not pricing further cuts by the ECB this year, and potentially diminished further QE effects on the currency (judging by the latest efforts), possibly implying that directional conviction for the pair could be found elsewhere.
This puts the focus on the July Advance Retail Sales figures from the US for possible swings today. Receipts growth is expected to slow to 0.4% versus the prior 0.6% print. A beat to expectations here could support Fed rate hike bets, as inflation is still the missing piece for the central bank, thus possibly pushing the US Dollar higher.
The preliminary reading of the University of Michigan August consumer confidence is set to hit the wires as well, with an expected figure of 91.5 versus a prior 90.0 reading. The inflation expectations number from the survey could also be in focus here due to the aforementioned considerations.
EUR/USD 10-Min GSI Chart: August 12, 2016
The EUR/USD is trading around possible resistance at the 1.1150 figure at the time of writing (see chart below), with GSI calculating higher percentage of past movement to the upside in the short term.
The GSI indicator above calculates the distribution of past event outcomes given certain momentum patterns. By matching events in the past, GSI describes how often the price moved in a certain direction.
You can learn more about the GSI here.
EUR/USD Technical Levels:
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We use volatility measures as a way to better fit our strategy to market conditions. The EUR/USD is expected to be the least active currency versus the US Dollar based on 1-Week implied volatility.
In fact, 30-Day ATR readings indicate that EUR/USD volatility is at its lowest level since September 2014.
Indeed volatility is suggesting a relaxed attitude in spite of significant shocks to the market, and an overall ‘summer lull’, with depressed volatility further implying that a major catalyst might be needed to see the EUR/USD break out of its more macro levels.
In turn this may imply that range bound trading plays might be appropriate at the moment.
EUR/USD 30-Min Chart: August 12, 2016
(Click to Enlarge)
The EUR/USD is trading at an area of potential resistance around the 1.1150 level at the time of writing. A break higher could expose possible resistance at a zone above 1.1180 followed by levels at 1.1200, 1.1220, 1.1250 and the 1.13 handle.
Levels of support on a move lower may be 1.1136, 1.1120, 1.1100, 1.1070 and 1.1050.
When price reaches those levels, short term traders might use different technical tools and the GSI to view how prices reacted in the past given a certain momentum pattern.
We generally want to see GSI with the historical patterns significantly shifted in one direction, which alongside a pre-determined bias and other technical tools could provide a solid trading idea that offer a proper way to define risk.
We studied over 43 million real trades and found that traders who successfully define risk were three times more likely to turn a profit.
Read more on the "Traits of Successful Traders” research.
Meanwhile, the DailyFX Speculative Sentiment Index (SSI) is showing that about 41.0% of traders are long the EUR/USD at the time of writing. The SSI is mainly used as a contrarian indicator, but range bound trading conditions are usually associated with retail traders more successful periods implying a short bias.
You can find more info about the DailyFX SSI indicator here
--- Written by Oded Shimoni, Junior Currency Analyst for DailyFX.com
To contact Oded Shimoni, e-mail oshimoni@dailyfx.com
Follow him on Twitter at @OdedShimoni
