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EUR/USD: weakening of the euro expected during the European session

Previous:

On Tuesday, trading on the EUR/USD currency pair closed down. Despite a rise in quotes to 1.0630, the rate fell to 1.0576, and then further to 1.0551 in the Asian session. The dollar rose across the board after San Francisco Fed chief John Williams commented that the FOMC would be looking very closely at the possibility of raising interest rates when they sit down later this month.

In response to his comments, US 10-year bond yields shot up. According to CME Group's FedWatch Tool, the probability of a rate hike in March has grown from 31.0% to 62.0%, in May from 53.1% to 69%, and in June from 72.6% to 83.5%.

I've disregarded Donald Trump's address to Congress as his speech provided no details or figures about his reform plans.

Market expectations:

Looking at the bigger picture, the single currency should fall against the dollar today. During the European and US sessions, I'm expecting a drop to around 1.0527. If 10-year bond yields rise above 2.43%, then we can set 1.0502 as an intraday target.

The news section for Wednesday is quite full, and each event is likely to induce some kind of correction on the market.

Day's news:

  • 10:00 Switzerland: UBS consumption indicator (Jan);
  • 11:30 Switzerland: SVME PMI (Feb);
  • 11:55 Germany: unemployment change (Feb), Markit manufacturing PMI (Feb);
  • 12:00 Eurozone: Markit manufacturing PMI (Feb);
  • 12:30 UK: Markit manufacturing PMI (Feb), consumer credit (Jan), M4 money supply (Jan), mortgage approvals (Jan);
  • 16:00 Germany: Consumer Price Index (Feb);
  • 16:30 Canada: current account (Q4);
  • 16:30 USA: personal consumption expenditures - price index (Jan), personal spending (Jan), personal income (Jan);
  • 17:30 Canada: RBC manufacturing PMI (Feb);
  • 17:45 USA: Markit manufacturing PMI (Feb);
  • 18:00 Canada: BoC interest rate decision; USA: ISM manufacturing PMI (Feb), construction spending (Jan), ISm prices paid (feb);
  • 18:30 USA: EIA crude oil stocks change (Feb 24);
  • 21:00 USA: FOMC member Kaplan's speech;
  • 22:00 USA: publication of Fed's Beige Book.

EURUSD rate on the hourly. Source: TradingView

Intraday forecast: low; 1.0527, high: 1.0589 (current in Asia), close: 1.0544.

My predictions for Tuesday came off in full. Head of the San Francisco Fed, John Williams, knocked the euro down from a high of 1.0630 to 1.0570 with his comments about interest rates. In Asia, the rate fell to 1.0551. The weakening of the euro stopped at the 90th degree.

Looking at cycles and historical patterns, today, I'm expecting a fall to around 1.0527. If US 10-year bond yields rise above 2.43%, we can set the target even lower at 1.0502 (112 degrees). The most influential factors for the euro are listed below.

Positives for the euro ( ):

Fundamental:

( ) US president Donald Trump favours a weaker dollar;

 ( ) 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):

( ) 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;

( ) On the daily timeframe, the EUR/GBP cross has started a phase of growth. The immediate target is 0.86;

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

( ) Cycles are indicating growth for the euro from 14:00 EET;

( ) The monthly Stochastic indicator (5,3,3) has reversed upwards;

( ) German 10-year bond yields: 0.208% (up 0.97% for 01/03/17);

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);

(-) According to CME Group FedWatch Tool, the probability of a rate hike in March has grown from 31.0% to 62.0%, in May from 53.1% to 69%, and in June from 72.6% to 83.5%;

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

(-) Dallas Fed president says it's better to raise rates sooner rather than later;

(-) John Williams, head of the San Francisco Fed, says that FOMC members will give serious consideration to a hike in interest rates this month;

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

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

(-) Recent statistic favour the US;

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;

(-) US 10-year bond yields: 2.415% (up 2.2% on 28/02/17). In Asia, yields grew by 2.64% to 2.42%;

(-) A reversal hammer has formed on the daily timeframe;

(-) The daily Stochastic (5,3,3) and CCI indicators have reversed downwards;

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

(-) Cycles indicate a weakening euro up to 18:00 EET

(-) The average line of price movements with a 120 bar window (1 week) from 03/2015 and 08/2003 point to an intraday weakening of the euro against the dollar up until 18:00 EET;

(-) Long/short ratio as of 7:46 EET: 33%/66%, lots: 9160/17846, positions: 27570/41421.



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