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EUR/USD: fall to 1.0541 expected by the end of the day

Previous:

On Friday, trading on the euro closed in the red. Trading in Europe saw a renewed maximum for the euro before falling back against the dollar after the release of favourable statistics to the US. Data about consumer confidence for February and home retail sales for January exceeded market expectations. On the back of this news, the EUR/USD rate slid from 1.0618 to 1.0557.

By the end of the day, German 10-year bond yields were down 3.23% to 0.18% and they're down 43.4% on the weekly timeframe (a negative factor for the single currency). US 10-year bond yields fell by 3.05% to 2.315% and have fallen by 4.96% over the course of the last week. This fall in US bond yields has slightly neutralised the effect of the fall in their German counterparts.

Market expectations:

The upcoming presidential election in France and the issue of Greece's debt problems continue to weigh negatively on the single currency. Traders fear that a victory for French presidential candidate Marine Le Pen would threaten France's EU membership. In this regard, the euro may remain under pressure up to the second round of voting in May.

On the 28th of February, US president Donald Trump is set to give his first address to Congress. The main topics of this address will include questions about national security and economic proposals, as well as education, job creation, healthcare, and legal and tax reform.

On the daily timeframe, a reversal candle has formed, so after an upwards correction, I'm expecting a fall to around 1.0541 towards the end of the day.

Day's news (GMT 3):

  • 12:00 Eurozone: M3 money supply (Jan), private loans (Jan);
  • 15:30 Switzerland: SNB gov board member Zurbrugg's speech;
  • 16:30 USA: durable goods orders (Jan);
  • 18:00 USA: pending home sales (Jan);
  • 19:00 USA: FOMC member Kaplan's speech.

EURUSD rate on the hourly. Source: TradingView

Intraday forecast: low: 1.0541, high: 1.0583, close: 1.0548.

My expectations for Thursday came off in full. On Friday, the euro fell from 1.0618 to 1.0557. Traders in Asia moved Friday's low to 1.0551. On the hourly timeframe, I've highlighted two sectors that mirror one another. On the 22nd of February, a candle formed for the strengthening of the euro, and on the 24th another candle formed for its weakening.

At this moment in time, cyclical analysis and historical patterns point towards a restoration of the euro to 1.0583 (by 14:00 EET). After this, I'm expecting some downwards movement to around the 67th degree (1.0541). In Asia, 10-year US bond yields are in the green. At the moment, this is keeping the euro from growing. The European debt market is still closed.

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 has grown from 22.1% to 26.6%. This probability is low, and so remains a positive factor for the euro;

( ) The threshold for acceptable US government debt of 20.1 trillion USD may be reached by March this year. This will create headaches for new US president Donald Trump. A new law on the debt ceiling will come into force on the 16th of March 2017;

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

( ) François Bayrou, leader of the "Democratic Movement" party, has ruled out running for the presidency and thrown his weight behind independent candidate Emmanuel Macron;

Technical (short-term):

( ) On the daily timeframe, the EUR/GBP cross has started a phase of growth;

( ) Cycles are indicating some moderate growth for the euro by 14:00 EET followed by a slide towards the end of the day;

( ) On the daily timeframe, between the Stochastic indicator and CCI, some bullish divergences have formed;

( ) According to data for 21/02/17, small time speculators on the Chicago Exchange have increased their long positions by 1,687 contracts and reduced short positions by 2,888 contracts;

( ) The daily Stochastic indicators (5,3,3) are moving up;

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 fallen from 47.1% to 45.4% (relevant for March);

(-) Political risks in Europe are growing (French elections and Brexit). According to the latest poll by Elabe, support got Marine Le Pen has risen from 25.5% to 27%;

(-) 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):

(-) According to data for 21/02/17, short and long positions from large speculators have increased on the Chicago exchange. Long positions have grown by 4,953 contracts to 132,216, while short positions have gone up by 12,556 contracts to 183,011. Net short positions have grown from 39,144 contracts to 50,779;

(-) German 10-year bond yields: 0.18% (down 3.23% for 27/02/17);

 (-) US 10-year bond yields: 2.335% (morning growth of 0.76%);

(-) Price movement patterns from 06/2014, 09/2009 and 10/2012 indicate a weakening of the euro against the dollar by the end of trading today;

(-) The weekly Stochastic indicators (5,3,3), AO and AC are moving downwards;

(-)A reversal bar with a long shadow has formed on the daily timeframe;

(-) Long/short ratio as of 8:06 EET: 33%/66%, lots: 7174/14316, positions: 21604/33194.



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