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EUR/USD: buyers poised to break through the trend line

Previous:

Trading on the EUR/USD currency pair closed up at the end of Tuesday's session. The single currency appreciated against the greenback from 1.0635 to 1.0671. The daily candlestick closed to form a hammer, emitting a bullish signal.

Markets are nervously awaiting the upcoming meeting between Trump and Xi. Talks may be strained given that trump has threatened to label China a currency manipulator in the past. Accordingly, an increase in market volatility is expected on Thursday.

After rising to 1.0700, the Euro fended off pressure from growing US bond yields. The growth in bond yields was a response to Trump's announcement that he plans to increase infrastructure spending by about a trillion dollars.

Market expectations:

Macron is seen as likely to beat Le Pen in the second round of France's presidential election. Market participants don't believe that Le Pen has any chance of winning. As long as this remains the case, the Euro could break the 1.0900 level by the 23rd of April.

Trader attention will today be focused on the upcoming ADP report and the publication of the FOMC's minutes. In Asia, the common European currency has risen to 1.0681. Seeing as a hammer has formed on the daily candlestick, and that there is no important news from Europe, I'm still expecting to see the Euro break 1.0700 in the form of an upwards correction.

Day's news (GMT 3):

  • 10:55 Germany: Markit services PMI (Mar);
  • 11:00 Eurozone: Markit services PMI (Mar);
  • 11:30 UK: Markit services PMI (Mar);
  • 15:15 USA: ADP employment change (Mar);
  • 16:45 USA: Markit services PMI (Mar);
  • 17:00 USA: ISM non-manufacturing PMI (Mar);
  • 17:30 USA: EIA crude oil stocks change (Mar 31);
  • 21:00 USA: FOMC minutes.

EURUSD rate on the hourly. Source: TradingView.

Intraday forecast: low: n/a, high: n/a, close: n/a.

The Euro closed up on Tuesday but didn't reach the estimated 1.0700 level. Euro-bull activity was subdued by a rise in US bonds.

In Asia, buyers have managed to rewrite the highs of the last two days: 1.0681 and 1.0677. This is a good sign that the upwards movement will continue in the form of a correction. It's worth noting that the 22nd degree has been broken through, from which a new impulse driving the trend has begun.

For today, I'm setting a target of 1.0712, and 1.0764 for the end of this week. In today's European session, the trend line will run within a range of 1.0680 to 1.0686. Buyers need to break through this level as quickly as possible. A drop in the price past 1.0659 (22 degrees) will cast doubt on the possibility of such a breakthrough.

The daily Stochastic indicator has reversed upwards. As the price breaks 1.0702, the Euro's rise will gather momentum.  After testing the 67th degree, we can set a target of 1.0764.

My forecast stops at the publication of the FOMC's minutes. I'm not sure how the market will react to this with Trump's meeting with Xi looming.

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;

( ) In Asia, US 10Y bond yields have fallen by 0.09% to 2.348%;

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

( )EURGBP (D): the CCI (20) and Stochastic (5,3,3) 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;

( ) EURUSD (D): the Stochastic (5,3,3) is 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 Tuesday the 4th of April, the probability of a rate hike in May is has fallen from 6.4% to 5.3%, June 62.5% to 62.1% and in July from 68.2% to 66.8%;

(-) 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 7:07 EET: 23%/76%, lots: 10864/35963 (previous day: 9144/35234), positions: 40718/58683 (previous day: 34123/55724);

(-) German 10-year bond yields: 0.265% (down 4.67% from 04/04/17);

(-) US 10-year bond yields: 2.359% (up 1.33% from 04/04/17);

(-) 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 and AO indicators are down;

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

(-) EURUSD (D): the AO, AC, and CCI (20) 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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