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EUR/USD: Monday vs Friday

Previous:

Friday's trading on the euro closed in the green. The EUR/USD rate restored from a minimum of 1.0495 to 1.0623 ( 128 pips). This began as a correctional movement against the euro's weakening over the previous two days. In Europe, the euro strengthened against the dollar to 1.0573, and after Janet Yellen's speech, to 1.0623.

In her Friday address, the head of the US Fed confirmed that the central bank is set to increase interest rates during their meeting on the 15th of March. Given that traders were buying dollars on the back of speeches from other Fed members, they were able to make a profit following Yellen's speech as it brought about a sharp drop in the dollar across the whole currency market.

According to latest data from CME Group's FedWatch, the probability of a rate hike in March has gone up from 75.3% to 79.7%, in May from 79.0% to 81.5% and in June from 89.6% to 90.2%. US 10-year bond yields have fallen by 1.14% to 2.482%.

Market expectations:

Today is Monday, correction day. The economic calendar is fairly empty. From my forecast, I'm expecting some correctional movement to 1.0572 against Friday's rally. The trend line from 02/02/17 has been broken on the daily timeframe. The market share for buyers has surpassed that of sellers. If short positions on the euro continue to increase, the single currency will move towards 1.0650.

Day's news (GMT 3):

  • 12:10 Eurozone: retail sector PMI;
  • 12:30 Eurozone: Sentix investor confidence (Mar);
  • 14:30 UK: MPC member Hogg's speech;
  • 18:00 USA: factory orders (Jan);
  • 23:00 USA: FOMC member Kaskari's speech.

EURUSD rate on the hourly. Source: TradingView

Intraday forecast: low: 1.0572, high: 1.0622 (current in Asia), close: 1.0585.

On Friday, the target I set was reached. I didn't even try to predict the fluctuations that would follow Yellen's speech. Given that FOMC members had prepared the market for a rate hike before Yellen's speech, after she had spoken, the selling of short positions intensified.

The FOMC is set to meet on the 15th of March. Given uncertainty around Trump's economic policies, there is a chance that interest rates won't be raised this month, as many expect. I think this has been brought about by a sharp correction of the dollar.

If on Friday movement was all in one direction, then today I'm expecting the pair to move in the opposite direction. US bond yields are falling. Despite this, I'm expecting the euro to fall to the 45th degree (1.0572). The 45th and 67th degrees from the minimum 1.0495 coincide with the 67th and 45th degrees from the maximum 1.0623.

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;

( ) Marine Le Pen has had her EU parliamentary immunity from prosecution lifted for political reasons;

Technical (short-term):

( ) According to data from 28/02/17, large speculators on the Chicago Exchange have increased their short and long positions. Long positions have grown by 10,546 to 142,762 contracts, while short positions have grown by 4,293 to 187,304 contracts. Net short positions have fallen from 50,779 to 44,542 contracts.

( ) EURGBP: On the daily timeframe, the cross is in a phase of growth. A downwards reversal is possible;

( ) EURUSD (D): between the price and the CCI is a bullish divergence, the price rebounded from the minimum on 22/02/17, the CCI has intersected the -100 level from bottom to top, the fast line has intersected the slow line on the Stochastic (5,3,3) and the trend line was broken through on 02/02/17;

( ) EURUSD (M): The monthly Stochastic indicator (5,3,3) is moving upwards;

( ) German 10-year bond yields: 0.356% (up 0.28% for 03/03/17). US 10-year bond yields: 2.482% (down 0.30% on 03/03/17) In Asia, bond yields fell by 0.71% to 2.474%;

( ) Long/short ratio as of 7:51 EET: 54%/45%, lots: 15857/13262 (previous day: 7309/26242), positions: 38445/28152 (previous day: 24247/61257)

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 75.3% to 79.7%, in May from 79.0% to 81.5%, and in June from 89.6% to 90.2%;

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

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

Technical factors (short-term):

(-) According to data from 28/02/17, small speculators have increased their short positions by 1,481 contracts and reduced their long positions by 210;

(-) EURUSD (W): AO and AC are moving downwards; the weekly Stochastic (5,3,3) is trying to reverse upwards;

(-) EURUSD (W): The Stochastic, AO, AC and CCI are moving downwards.

Built into the price:

(-) President of the Philadelphia Fed, Patrick Harker, has hinted at a rate hike in March;

(-) President of the Dallas Fed, Kaplan, says that it's better to raise rates sooner rather than later;

(-) President of the San Francisco Fed, John Williams, says that March is a good time for the FOMC to seriously consider a rate hike;

(-) FOMC member Lael Brainard says that the US economy is growing, and that a rate hike would soon be appropriate;

(-) Head of the FOMC, Janet Yellen, has said that interest rates might be raised in March;

(-) Head of the Fed in Richmond, Lacker, has said that losing control over inflation could prove very costly;

(-) Vice-president of the Federal Reserve, Stanley Fischer, echoes his colleagues' comments about rate hikes.



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