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EUR/USD: expecting a slide to the 112th degree

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Trading on the euro on Monday closed slightly up ( 4 points). During trading in Europe, buyers were unable to renew the Asian maximum of 1.0633. Following the EUR/GBP cross's fall, and yesterday's national holiday in the US, the EUR/USD rate spent the day within a 30-point range, from 1.0603 to 1.0633.

Markets in the US were closed owing to national President's Day celebrations. The currency market has maintained a low volatility up to the opening of the Asian session.

Market expectations:

During trading in Asia, the EUR/USD has fallen to 1.0577. this downwards movement came after Philadelphia Federal reserve head Patrick Harker's announcement that the FOMC may raise interest rates when they meet in March. Given that markets reacted to this news in Asia, we can expect a similar reaction when he gives his speech today at 20:00 (GMT 3). Also planned for Tuesday are statements from two other Fed members, namely Neel Kashkari and John Williams.

This morning's weakening of the euro leads me to consider the possibility of a further depreciation to around 1.0550. From a technical point of view, the situation is contradictory. If US 10-year bond yields go into the red, and the EUR/GBP cross restores to 0.8526, then my case for further depreciation will be mooted.

Day's news (GMT 3):

  • 10:00 Switzerland: trade balance (Jan);
  • 11:30 Germany: Markit PMI composite (Jan), Markit manufacturing PMI (Jan), Markit services PMI (Jan);
  • 12:00 Eurozone: Markit manufacturing and services PMI (Feb);
  • 12:30 UK: public sector net borrowing (Jan);
  • 16:50 USA: FOMC member Kashkari speech;
  • 17:45 USA: Markit manufacturing and services PMI (Feb);
  • 18:30 Australia: CB leading indicator (Dec);
  • 20:00 USA: FOMC member Harker speech;
  • 23:30 USA: FOMC member Williams speech.

EUR/USD rate on the hourly. Source: TradingView

Intraday forecast: low: 1.0550 (112th degree), high: 1.0615 (current in Asia), close: 1.0575.

The euro showed a bullish trend throughout Monday. In Asia, Patrick Harker induced a weakening of the euro to 1.0577 with his announcement that we could see a rate hike in March. The rate has stayed at the 90th degree. Although the 90th isn't generally a very important support/resistance level for the euro, the market's current volatility has seen the rate bounce off it quite regularly.

To me, the situation seems contradictory. Cyclical analysis and hourly indicators point to a strengthening euro against the dollar, while daily indicators point to a slide. I've gone for a weakening of the euro, relying on the indicators on the daily timeframe. My expected price fluctuation range is represented by the grey zone on the chart above. On the hourly bar at 8:00, the trend line runs through 1.0605 and lb 1.0630. I'm expecting a rebound from the trend line at 1.0550, which by the end of the day will run through 1.0579. Apart from today's speeches, there's no important macro-data from Europe or the US today.

Positives for the euro ( ):

Fundamental:

( ) US president Donald Trump favours a weaker dollar;

( ) According to CME Group FedWatch Tool, the probability of a rate hike in March is 17.7%;

( ) The threshold for acceptable US government debt of 20.1 trillion USD may be reached by March this year;

( ) Greece may need less money than the IMF had planned for;

Technical (short-term):

( ) The EUR/GBP cross has broken the trend line on the hourly timeframe;

( ) The daily Stochastic indicator is in the buy zone and trying to form a bullish signal.

Negatives for the euro (-):

Fundamental:

(-) The ECB has no plans to curtail its QE program. According to the minutes of the latest meeting, most members of the Governing Council don't believe it necessary to reduce the amount of stimulus (long-term impact);

(-) The probability of a rate hike by the US Fed in June has risen from 45.8% to 46.5% (relevant for March);

(-) Political risks in Europe (French elections and Brexit);

(-) Greece is unable to reach a deal with its creditors for financial assistance;

(-) Recent statistic favour the US;

(-) Donald Trump is set to address Congress on the 28th of February;

(-) Head of the Philadelphia Fed, Patrick Harker, believes that a rate hike in March is possible;

Technical factors (short-term):

(-) Net short positions from speculators big and small have increased on the Chicago exchange. For large speculators, it has grown at the expense of long positions by 2079 contracts. For small speculators, the number of short positions has increased by 6632 contracts;

(-) The daily Stochastic (5,3,3) has reversed downwards. The weekly Stochastic (5,3,3) is also looking down;

(-) US 10-year bond yields are up to 2,442% ( 0.61%).



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