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EUR/USD: Euro again ready for a breakout of the trend line

Previous:

The EUR/USD pair closed up yesterday for the second day in a row. Over the last few days, a false breakout of the trend line has been confirmed. The Euro strengthened against the US dollar to 1.0630, but that's as far as buyers managed to push the price. As traders avoided risk and the main EUR/GBP cross fell, our EUR/USD pair went into a correctional phase.

The Euro's fall against the pound and dollar coincided with a rise in quotes for gold and yen. This flight to more defensive assets and a fall in US bond yields were brought about by rising political tensions relating to Syria and North Korea.

US president Donald Trump has stated that Washington will deal with North Korea with or without China's cooperation. North Korean state media has issued a statement warning of a nuclear attack on the US in the case of any provocation.

Market expectations:

Treasury bonds are currently in the red while gold and yen are appreciating. Investors are worried by the growing political tensions in Syria and on the Korean peninsula. The upcoming elections in France are also giving them cause for concern.

The single currency lost some ground against the greenback during the EUR/GBP cross's fall, but falling US bond yields has been providing support for buyers.

Taking the long weekend ahead into account, I'm expecting our pair to continue its sideways trend. For the US session, today I'm expecting the dollar to strengthen to 1.0632.

Day's news (GMT 3):

  • 11:30 UK: average earnings (Feb), claimant count change (Mar), unemployment rate (Feb);
  • 11:40: BoE governor Mark Carney's speech;
  • 15:30 USA: import price index (Mar);
  • 17:00 Canada: BoC interest rate decision;
  • 17:30 Canda: BoC monetary policy statement;
  • 17:30 USA: EIA crude oil stocks change (Apr 7)
  • 18:15 Canada: BoC press conference;
  • 21:00 USA: monthly budget statement (Mar).

EURUSD rate on the hourly. Source: TradingView.

Intraday forecast: low: 1.0588/95, high: 1.0632, close: 1.0615.

On Tuesday, the Euro closed up. Buyers tested the 1.0630 level from below, which was previously a support. The first attempt at a breakout was unsuccessful. The EUR/GBP pair's slide has had a negative effect on our main currency pair. Buyers have retreated to 1.0600 level. In Asia, the rate has fallen to 1.0595.

On the hourly timeframe, yesterday's breakout of the trend line turned out to be false. Buyers now need to prepare for another assault. From a high of 1.0630, the correction amounted to 22 degrees. The price's bounce from the lb balance line will give buyers hope of some new growth towards 1.0630.

My forecast is looking north given that US bonds are down and that I'm expecting a correction on the EUR/GBP cross. Given growing geopolitical tensions and general risk avoidance on the markets, I'm not ruling out a return to 1.0579 (45 degrees). By the way, the trend line on the daily timeframe currently passes through this level and is acting as a support. Look at the previous correction from 1.0607. The rate can go up if we see a renewed minimum in the Asian session.

Positives for the euro ( ):

Fundamental:

( ) Bundesbank president, Jens Weidmann, has stressed that the ECB needs to bring an end to its QE program earlier than planned;

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

( ) 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;

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

Technical (short-term):

( ) Small speculators have increased their long positions by 1,181 to 65,366 contracts. Short positions have been reduced by 3,261 to 59,842 contracts. Net-long positions have grown from 1,082 to 5,524 contracts;

( ) US 10-year bond yields: 2.298% (down 2.33% from 11/04/17);

( ) In Asia, US 10Y bond yields have fallen by 1.20% to 2.287%;

( ) EURGBP (W):  CCI (20) - up;

( ) EURUSD (M): Stochastic (5,3,3), AO, AC, CCI (20) - up;

( ) EURUSD (W): AO, AC - up;

( ) EURUSD (D): AC, Stochastic (5,3,3), CCI (20) - up;

Negatives for the euro (-):

Fundamental:

(-) Head of the ECB - revision of monetary policy not required for the moment;

(-) According to CME Group's FedWatch Tool, on Tuesday the 11th of April, the probability of a rate hike in May remains 4.3%. The probability in June has fallen from 66.2% to 61.7% and in July from 68.7% to 65.6%;

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

Technical factors (short-term):

(-) According to data from 04/04/17, large speculators on the Chicago exchange have reduced their long and short positions. long positions have fallen by 4,506 to 155,947 contracts, while short positions have fallen by 1,314 to 166,294 contracts. Net-short positions have grown from 7,155 to 10,347 contracts;

(-) Short/long ratio according to myfxbook as of 6:54 EET: 19%/80%, lots: 8779/28591  (previous day: 7863/31489), positions: 30239/58209 (previous day: 28881/63205);

(-) German 10-year bond yields: 0.204% (down 1.45% from 11/04/17);

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

(-) EURGBP (W): Stochastic (5,3,3), AO, AC - down;

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

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

(-) EURUSD (D): AO - 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;

(-) 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;

( ) 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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