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EUR/USD: correction to the 45th degree likely

Previous:

The euro made some significant gains during Wednesday's trading. From a low of 1.0607, the euro appreciated against the US dollar by 133 pips up to 1.0740.

The Federal Reserve committee took the decision to raise interest rate by 0.25% to the 0.75-1% range. The decision was voted on by 9 committee members. Only one; Neel Kashkari, voted against the rate hike. Another further 2 rate hikes are expected for this year.

Given that a rate hike was already factored into the price by the market, the dollar fell across the board as the decision was announced and as Janet Yellen held her press conference. Euro-bulls were given an extra little boost by news from the Netherlands that the People's Party for Freedom and Democracy (VVD) is leading in the parliamentary elections.

Geert Wilders, the leader of the Freedom Party, has conceded defeat in the Dutch parliamentary elections. According to exit polls, the VVP, headed by the current Prime Minister, has won 31 seats out of 150.

Market expectations:

In Asia, buyers shifted the maximum to 1.0746. According to the latest quotes, the euro is trading at 1.0722. After yesterday's rally, I'm forecasting a slide to around 1.0694. I can't see the euro growing given that the Bank of England is set to announce its interest rate decision today at 15:00 EET. I'm not expecting any surprises from the central bank, so the euro should come under pressure on the cross, which should prevent the euro from continuing yesterday's rally.

I'm not ruling out a renewed maximum as trading opens in Europe. I put the probability of a renewed maximum at 15%. It would be good to see a correctional phase during the day today so that the euro might continue to strengthen on Friday. The US session has no significant events scheduled.

Day's news (GMT 3):

  • 09:30 Japan: BoJ press conference;
  • 11:30 Switzerland: SNB interest rate decision;
  • 13:00 Eurozone: CPI (Feb);
  • 15:00 UK: BoE interest rate decision;
  • 15:30 USA: jobless claims, building permits (Feb), Philadelphia Fed manufacturing survey (Mar);
  • 15:30 Canada: foreign portfolio investment in Canadian securities (Jan);
  • 17:00 USA: JOLTS job openings (Jan);
  • 17:30 USA: EIA natural gas storage change (Mar 10).

EURUSD rate on the hourly. Source: TradingView

Intraday forecast: low: 1.0696, high: 1.0746, close.

After interest rates in the US were raised by 0.25%, the euro restored to 1.0746. It's not a bad start on the way to the target of 1.0785 (resistance levels on the daily timeframe: H1.0873 and H1.0829).

The euro's strengthening has stopped in the reversal zone between the 112th and 135th degrees, at the MA line U3. I'm forecasting a correction to the 45th degree at 1.0694. For further growth to happen, the rate shouldn't go below the 45th degree. Otherwise, the correction may continue for three days and then after an unsuccessful attempt at breaking the 1.0750 level, the euro will renew its downwards movement. There's an intermediate support at 1.0720.

Given that the hourly Stochastic is down, and reversing upwards, I'm expecting a minor restoration to 1.0734. The likelihood of the maximum being renewed when trading opens in Europe is 15%.

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;

( ) The Greek government has made some progress in its talks with international creditors on the second stage of their reform program;

( ) Head of the ECB, Mario Draghi, has hinted that the central bank may not need to provide any further stimulus to revitalise Europe's economy. From April to December 2017, the ECB will reduce their monthly assets purchases to 80 to 60 billion EUR;

( ) ECB bosses have discussed the possibility of raising interest rates before the QE program comes to an end;

Technical (short-term):

( ) Long/short ratio according to myfxbook as of 7:11 EET: 67%/32%, lots: 24304/11716 (previous day: 17037/25360), positions: 62780/33193 (previous day: 44302/56475);

( ) US 10-year bond yields: 2.435% (down 4.11% from 15/03/17). In Asia, US 10Y bond yields have fallen by 0.37% to 2.495%;

( ) EURGBP (W):  the CCI (20), AO, AC and the Stochastic (5,3,3) are moving upwards. the trend line has been broken through;

( ) EURGBP (D): the AO is moving upwards;

( ) EURUSD (M): the Stochastic (5,3,3) is moving upwards;

( ) EURUSD (W): The Stochastic (5,3,3), AO, AC, and CCI (20) have reversed upwards;

( ) EURUSD (D): the AO, AC, and CCI (20) indicators are moving upwards. The price rebounded from the trend line after the FOMC meeting;

Negatives for the euro (-):

Fundamental:

(-) According to CME Group's FedWatch Tool, as of Wednesday the 15th of March, the probability of a rate hike in May is 93.5%, 49.6%% in June, and 58.3% in July;

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

Technical factors (short-term):

(-) According to data from 07/03/17, large speculators on the Chicago Exchange have increased their long and decreased their short positions. Long positions have fallen by 5,404 to 137,358 contracts, while short positions have grown by 8,820 to 196,124 contracts. Net short positions have grown from 44,542 to 58,766 contracts.

 (-) German 10-year bond yields: 0.414% (down 7.58% from 15/03/17);

(-) EURUSD (M): the AO and AC indicators are moving downwards;

(-) EURGBP (D): the AC, CCI (20), and Stochastic (5,3,3) indicators are moving downwards;

Built into the price:

(-)  The Ex-Prime Minister of France, Alain Juppe, has ruled himself out of participating in the presidential election;

( ) 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.



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