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EUR/USD: a conflicting situation

Previous:

On Tuesday, the euro once again closed down against the dollar. The single currency depreciated against the US dollar after Fed Chair Janet Yellen addressed Congress. She announced that the central bank may decide to raise interest rates in one of the forthcoming meetings. She gave no indication, however, of when exactly this might happen.

US 10-year bond yields surged by 2.5% to 2.5031%. For bonds, this is a huge amount to grow in the space of an hour. Following this surge, the EUR/USD rate fell to 1.0561.

Market expectations:

On the daily timeframe, buyers broke through the 1.0580 support. In doing this, they've paved the way to a further drop to 1.0457 as the current political climate in Europe will push the rate further in this direction. If you look at the intraday price dynamics over the past few days, cyclical analysis shows the euro always rises after depreciating during the US session.

The situation is basically as follows: as European markets open, the rate will fall to 1.0555, then in the US, we'll see growth to 1.0602 (lb). If we see immediate growth as European markets open, we can expect to see price movements in the same pattern as the last couple of days.

Day's news (GMT 3):

  • 12:30 UK: average earnings (Jan), claimant count (Jan), ILO unemployment rate (Jan);
  • 13:00 Eurozone: trade balance (Dec);
  • 16:30 Canada: manufacturing shipments (Dec);
  • 16:30 USA: Consumer Price Index (Jan), Consumer Price Index Core (Jan), retail sales (Jan), retail sales control group (Jan), NY Empire State Manufacturing Index (Feb);
  • 17:15 USA: capacity utilisation (Jan), industrial production (Jan);
  • 17:30 UK: CB Leading Economic Index (Jan);
  • 18:00 USA: Fed's Yellen speech, NAHB Housing Market Index (Feb);
  • 18:30 USA: EIA crude oil stocks change (week 5-10 Feb);
  • 20:45 USA: FOMC member Harker speech.

EURUSD rate on the hourly. Source: TradingView

Intraday forecast: low: 1.0555, high: 1.0602, close: 1.0582

On Tuesday, for the second time in a row, the euro rate strayed from the trend line as Yellen gave her speech. I didn't account for her speech in yesterday's forecast because I'm not particularly familiar with her discourse. She promised that the Fed would raise interest rates in one of the forthcoming meetings. So, this will be either in March or June.

Her speech today shouldn't have much influence on the currency market. According to my forecast, I'm expecting the pair to correct towards the trend line and the Lb line, reaching a new minimum in the process. A new minimum is needed so that between the AO and the price change over a few hours, a bullish divergence will form. In this case, from 90 degrees, one can risk betting against the trend with a target of 1.0600. The euro has closed down four days in a row, so there's a chance of a strong rebound. The only thing I would add is that you shouldn't increase your risk in going against the trend. You should only do so according to the reliable signals, should they appear.

If the euro begins to strengthen as markets open in Europe, then once it reaches 1.0595, the rate's decline will recommence. Don't forget that the buyers' share of the market is 74%, and this number is showing no signs of dropping. Keep an eye on US bond yields, this should take priority over technical signals. I put the likelihood of my forecast coming off at 65%. Happy trading!



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