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EUR/USD: W-model forming

Previous:

On Wednesday, the Euro fell against the dollar to 1.0740. The pair has now closed down for the second day in a row. The 29th of March saw the process of the UK's exit from the European Union officially begin. The triggering of Article 50 sets negotiations in motion, for which there is a two-year time limit. As such, the process should be completed in 2019.

Following the pound's collapse yesterday, trader sentiment towards it improved after Chancellor Phillip Hammond spoke. He expressed his confidence that the government would reach a favourable deal for Britain. The EUR/GBP cross grew on this news, putting the single currency under pressure.

Market expectations:

The scales are starting to tip in buyers' favour. Now, it's important to keep an eye on US 10Y bond yields seeing as they slid yesterday from 2.43% to 2.378%. After a phase of growth, the subsequent rebound was a big one at over 62%. Seeing as the Euro was under pressure from the cross at the time, traders ignored the fall in bond yields.

In Asia, bonds are trading up, but it's not a foregone conclusion that this growth will continue into the European session. Should US 10Y fall below 2.373%, the Euro should jump to 1.0795 level. The EUR/GBP cross is also starting to reverse upwards after it's morning slide. There's no significant data expected from Europe today.

Day's news (GMT 3):

  • 10:00 Switzerland: KOF leading indicator (Mar);
  • 12:00 EU: consumer confidence (Mar), economic sentiment indicator (Mar);
  • 15:00 Germany: CPI (Mar);
  • 15:30 Canada: raw material price index (Feb), industrial product price (Feb), USA: GDP annualised (Q4), GDP price index (Q4), initial jobless claims (Mar 24);
  • 17:30 USA: EIA natural gas storage change (Mar 24);
  • 18:00 USA: FOMC member Kapaln's speech;
  • 18:15 USA: FOMC memeber Williams' speech;
  • 23:30 USA: FOMC member Dudley's speech.

EURUSD rate on the hourly. Source: TradingView.

Intraday forecast: low: 1.0730/1.0740, high: 1.0795, close: 1.0779.

On Wednesday, the exchange rate broke through the trend line at 1.0790. After this breakthrough, the price subsequently fell to 1.0740. The rate was kept from falling further by the combined support of the MA line D3 and the 135th degree.

The 135th degree has been trying to keep sellers at bay for the last 16 hours. So far, it's managed to do this. If the EUR/GBP cross bounces upwards, a W-model will form on our main pair.

In my forecast today, I'm envisaging a classic scenario. After breaking through the trend line yesterday, the price will return to this level and test the veracity of the breakthrough.

My forecasted target is 1.0795. Why exactly 1.0795, you ask? Because the 45th degree runs through this level. The lb balance line will be at this level by this evening. The Fibonacci 38.3% is located at 1.0803 level from the downwards movement from 1.0906 to 1.0740 (strengthening the level). The trend line from top 1.0906 also runs through this point. There's too large a concentration of levels in one place.

So, could the euro/dollar fall below 1.0740? Yes, it could. The target for the next few days after the breaking through of the trend line is at 1.0628 level. If US 10Y bond yields restore to 2.43% and go higher, the Euro will depreciate against the dollar.

Positives for the euro ( ):

Fundamental:

( ) 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;

( ) On the 24th of March, Donald Trump withdrew his proposed healthcare bill to replace Obamacare from the US Congress' agenda;

Technical (short-term):

( ) According to data from 21/03/17, large speculators on the Chicago Exchange have significantly increased their long and decreased their short positions. Long positions have grown by 10,138 to 158,646 contracts, while short positions have fallen by 10,325 to 176,891 contracts. Net short positions have fallen from 38,707 to 18,245 contracts. Small speculators have increased their long positions by 3,811 to 65,280 contracts and short positions by 4,779 to 63,093 contracts. Net long positions have fallen from 3,158 to 2,178 contracts.

( ) US 10-year bond yields: 2.385% (down 1.73% from 29/03/17);

( ) EURGBP (W):  the CCI (20), AO and AC are up;

( ) EURGBP (D): the AO and Stochastic (5,3,3) indicators are up;

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

( ) EURUSD (W): The Stochastic (5,3,3), AO, AC, and CCI (20) are up;

Negatives for the euro (-):

Fundamental:

(-) Eric Rosengren, president of the Boston Fed, argues that the central bank should raise interest rates every other session, meaning that he expects to see another 3 hikes this year;

(-) FOMC member Williams is envisaging another 2-3 rate hikes this year and isn't ruling out the possibility of even more;

(-) According to CME Group's FedWatch Tool, on Wednesday  the 29th of March, the probability of a rate hike in May remains 4.3%. The probability in June has risen from 48.5% to 52.9% and in July from 56.1% to 58.8%;

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

Technical factors (short-term):

(-) Short/long ratio according to myfxbook as of 07:04 EET: 48%/51%, lots: 23661/25376 (previous day: 31253/16232), positions: 54075/51699 (previous day: 67713/39342);

(-) German 10-year bond yields: 0.344% (down 13.13% from 29/03/17);

(-) In Asia, US 10Y bond yields have grown by 0.16% to 2.391%;

(-) EURGBP (W): The Stochastic (5,3,3) is down;

(-) EURGBP (D): the AO and CCI (20) indicators are down;

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

(-) EURUSD (D): the AC, CCI (20) and Stochastic (5,3,3) indicators are down;

Built into the price:

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

(-) Fed member Evans is expecting 2-3 rate hikes in 2017. The Federal Reserve will make a decision about the next hike in June;

(-) President of the Philadelphia Fed, Harker, announced that the Federal Reserve will continue to gradually increase interest rates throughout 2017;

( ) 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;

( ) 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;

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

( ) Ewald Nowotny, a member of the ECB's governing council, has said that the bank could raise the deposit rate before the main refinancing rate;

( ) ECB member Lautenschläger warns that it's time to prepare for a change in the bank's policy.



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