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EUR/USD: Monday versus Friday

Previous:

The EUR/USD pair closed the week 1.28% down. The single currency initially appreciated after the release of macro-data from the US, but renewed its minimum following the collapse of the EUR/GBP and EUR/JPY cross pairs.

A slide in US bond yields should have strengthened the Euro, but trading in New York saw it lose ground against both the British pound and Kiwi dollar. Traders sought to close their positions ahead of the month's and quarter's close and they ignored plenty of bullish signals in the wake of Brexit being officially triggered. At the end of the month, the EUR/USD instrument is up 0.76%, and 1.33% for the quarter.

US statistics:

The University of Michigan consumer sentiment index grew to 96.9 (forecast: 97.6, previous reading: 96.3);

The Chicago business barometer grew to 57.7 (forecast: 56.9, previous reading: 57.4);

US personal income rose 0.4% in February (forecast: 0.4%, previous reading: 0.4%), while personal spending came in at 0.1% (forecasted: 0.2%, previous reading: 0.2%).

Market expectations:

The Euro has opened up at the beginning of this week and has restored from Friday's low to 1.0678. Given that the pair closed down on Friday, today's movement should go against this. According to my forecast, a renewal should begin after 10:00 EET from 1.0666 level. As the price approaches this level, it's essential to keep an eye on the dynamics of the EUR/GBP cross as its fall could push the Euro back down to 1.0652. The target for restoration is 1.0703 on the 45th degree.

Day's news (GMT 3):

  • 10:15 Switzerland: retail sales (Feb);
  • 10:30 Switzerland: PMI (Mar);
  • 10:55 Germany: Markit manufacturing PMI (Mar);
  • 11:00 Eurozone: Markit manufacturing PMI (Mar);
  • 11:30 UK: Markit manufacturing PMI (Mar);
  • 13:00 Eurozone: unemplyment rate (Feb), PPI (Feb);
  • 16:30 Canada: RBC manufacturing PMI (Mar);
  • 16:45 USA: Markit manufacturing PMI (Mar);
  • 17:00 USA: construction spending (Feb), ISM manufacturing PMI (Mar);
  • 17:30 Canada: BoC business outlook survey, USA: Fed's William Dudley speech;
  • 22:00 USA: FOMC member Harker speech;

EURUSD rate on the hourly. Source: TradingView.

Intraday forecast: low: 1.0658 (current in Asia), high: 1.0704, close: 1.0687.

The EUR/USD instrument has now closed down 4 days in a row. Since the 27th of March, the pair has fallen by 61.2% (249 pips) on the upwards movement from 1.0495 to 1.0906. The target and support zones have been reached. If we see a decent rebound (past 1.0702), then we could see an upwards correction to 1.0750 in the coming days. For today, it will be enough to renew Friday's maximum of 1.0702.

Given that our pair closed down on Friday, I'm expecting today's movement to go against this. The target for the 45th degree is 1.0704. A session rally is expected from 1.0666 in a testing of the trend line after it was broken through. Should the Euro weaken, we should keep an eye on the EUR/GBP cross. If sentiment on the cross turns out to be bearish, we could see the Euro quickly return to 1.0652.

Between the price and the AO indicator, a bullish divergence has formed. In the event that the EUR/GBP cross doesn't fall and US bond yields continue their slide, we could see our calculated target reached before 17:00 EET.

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 from 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 28/03/17, large speculators on the Chicago Exchange have increased their long and decreased their short positions. Long positions have grown by 1,807 to 160,453 contracts, while short positions have fallen by 9,283 to 167,608 contracts. Net short positions have fallen from 18,245 to 7,155 contracts;

( ) US 10-year bond yields: 2.389% (down 0.99% from 31/03/17);

( ) In Asia, US 10Y bond yields have fallen by 0.02% to 2.395%;

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

( ) EURUSD (M): the Stochastic (5,3,3), AO, AC and CCI (20) are 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. The Fed could also start reducing its balance sheet this year, which is earlier than many economists had predicted;

(-) Dallas Fed president Kaplan has said 3 rate hikes in 2017 is his base case;

(-) FOMC member Mester says that the Fed needs to reduce the size of its balance sheet this year;

(-) St. Louis Fed president Bullard has said that the Federal Reserve needs to act quickly on normalising its balance sheet;

(-) According to CME Group's FedWatch Tool, on Friday  the 31st of March, the probability of a rate hike in May is still 6.4%. The probability in June has risen from 54.0% to 62.5% and in July from 60.8% to 68.2%;

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

Technical factors (short-term):

(-) Small speculators on the Chicago exchange have reduced their long positions by 1,095 to 64,185 contracts and increased shorts by 10 to 63,103 contracts. Net long positions have fallen from 2,187 to 1,082 contracts;

(-) Short/long ratio according to myfxbook as of 06:54 EET: 23%/76%, lots: 5898/19599 (previous day: 17069/44373), positions: 21138/32715 (previous day: 41132/67660);

(-) German 10-year bond yields: 0.328% (down 3.52% from 31/03/17);

(-) EURGBP (M): the AC, AO, CCI (20) and Stochastic (5,3,3) indicators are down;

(-) EURGBP (W): The Stochastic (5,3,3) and CCI (20) are down;

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

(-) EURUSD (W): the Stochastic (5,3,3) is down;

(-) EURUSD (D): the AO, 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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