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EUR/USD: trend line broken through

Previous:

The Euro closed up at the end of trading on Wednesday. The price spent the day in a sideways trend within a 35 point range from 1.0589 to 1.0624. The price broke through the trend line and exited this range towards the end of the trading day. The dollar fell on the back of comments from US president Donald Trump, who stated that the dollar is getting too strong and that it's damaging the US economy. He also called on the Federal Reserve to maintain low interest rates.

Most interestingly, the head of the Fed, Janet Yellen, is slightly concerned about a bill that is currently pending in Congress. If accepted, this bill would change the rules on how the Federal Reserve could react to crises and the conditions for changing interest rates. The independence of the Federal Reserve is under threat.

US 10Y bond yields have fallen by 2.57% to 2.235%. The EUR/USD rate has risen to 1.0675.

Market expectations:

At the time of writing this review, the Euro is trading at 1.0673. In Asia, buyers have shifted the maximum to 1.0677. After renewing the maximum, I'm expecting a downwards correction to 1.0651. The depth of the correction will depend on whether or not buyers will want to keep their long positions open over the long weekend. Due to Easter celebrations, a lot of European exchanges will be closed on Friday and Monday.

A leap to around 1.0685/90 is possible. As Trump has strengthened the Euro, it could lose all its gains as attention turns towards the French elections. I'll be pleasantly surprised if the price manages to reach 1.0700 in the first half of the day. In any case, though, for any further advance, it's best to start from a rebound.

Day's news (GMT 3):

  • 09:00 Germany: CPI (Mar);
  • 10:15 Switzerland: producer and import prices (Mar);
  • 11:30 UK: BoE credit conditions survey;
  • 15:30 Canada: manufacturing shipments (Feb), new housing price index (Feb);
  • 17:00 USA: Michigan consumer sentiment index (Apr).

EURUSD rate on the hourly. Source: TradingView.

Intraday forecast: low: 1.0651, high: 1.0681, close: 1.0658.

On Wednesday, the Euro closed up thanks to Trump's comments. After talking about Syria, he turned his attention towards North Korea, and then to the US dollar. From a low of 1.0569, the Euro restored against the dollar by 90 degrees.

1.0630 level has been broken through. The next resistance is at 1.0680. US 10Y bond yields are down by 3%. The Euro's growth is being held back by the EUR/GBP cross.

The Euro appreciated by 80 pips during trading in Chicago. After such a session rally, we should see a correction. If the correction goes according to my forecast, then we could see some continued growth on Friday as far as the 112th degree (1.0700) or higher. If the Euro rises to 1.0690/700 from when trading opens, we might see a correction to 1.0651 before the long weekend, but the Euro will likely continue to fall next week.

At the moment, the 22nd degree is at 1.0650 level. It's best if the rate doesn't fall below this level. If it falls below 1.0630, that would put any subsequent growth in doubt.

Positives for the euro ( ):

Fundamental:

( ) US president Donald Trump favours a weaker dollar;

( ) 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: 2.246% (down 2.26% from 12/04/17);

( ) In Asia, US 10Y bond yields have fallen by 3.09% to 2.225%;

( ) 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 Wednesday the 12th of April, the probability of a rate hike in May has risen from 4.3% to 5.3% and in June from 61.7% to 62.1%. The probability of a rate hike in July has fallen from 65.6% to 65.0%;

(-) 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 7:30 EET: 41%/58%, lots: 14854/20953  (previous day: 8779/28591), positions: 42571/46347 (previous day: 30239/58209);

(-) German 10-year bond yields: 0.201% (down 1.47% from 12/04/17);

(-) 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;

( ) 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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