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EUR/USD: Europe resting, V-model expected in a day of formations

Previous:

Over the past two weeks, the Euro has appreciated against the greenback by 2.79% to 1.0898. Two significant events took place between the 17th and 30th of April upon which the British and European currencies both strengthened against the US dollar.

On the 18th of April, the British pound became the driving force behind all currencies. By the end of the day, the GBP/USD rate had jumped by 400 pips to 1.2903. The closing of short positions on this instrument was triggered by British Prime Minister Theresa May's announcement of a snap election on the 8th of June this year.

The Euro followed the pound upwards but due to a fall on the EUR/GBP cross, the Euro's growth against the dollar was 4 times smaller than that of the pound. The Euro the closed the gap of the 24th of April, breaking 1.0900 in the wake of Emmanuel Macron's victory in the first round of France's presidential election. The morning gap was 195 pips.

On Friday, trading on the Euro closed slightly up. It traded within a range of about 100 pips. The Euro's rally was brought about in the first half of the day by some positive inflation data from the Eurozone and disappointing GDP figures from the UK.

Inflation almost reached its target of 2.0% for the year. It will now be difficult for the ECB to justify the continuation of their quantitative easing program. The EUR/USD rose to the 1.0947 mark during the European session; a whole 90 pips higher than the Asian minimum of 1.0857.

The EUR/GBP pair has renewed its weekly minimum at the beginning of the European session, and subsequently restored to 0.8462 after the UK's disappointing GDP data release.

After the publication of consumer confidence and GDP reports in the US, the Euro lost half of its daily gains. The reports came out worse than expected. According to news reports, traders had been focusing their attention on the GDP price index, which came out at 2.3% against a forecast of 2.0% and a previous reading of 2.1%. I believe that interest in the Euro has abated due to the May holidays.

US statistics:

The Michigan University consumer sentiment index came out at 97.0 (forecast: 98.0, previous reading: 98.0);

Preliminary GDP figures from the US show 0.7% QoQ growth for the first quarter of 2017 (forecast: 1.2% QoQ, previous reading: 2.1% QoQ);

The Chicago PMI business activity index came out at 58.3 (forecast: 56.4, previous reading: 57.7).

Market expectations:

Some unfavourable statistics came out in China on Friday. Business activity in the manufacturing and service sectors did not meet market expectations. The reaction to this as currency markets opened was muted.

On Monday, European exchanges are closed due to International Workers' Day. This day is being observed in Switzerland, the UK, Singapore, Hong Kong and Russia among others.

After the first round of the French election, activity on currency markets fell. Traders await the results of the second round, which will take place on the 7th of May. Because of this, the Euro has been caught within a horizontal range from 1.0850 to 1.0950 over the past week.

Given that today is a public holiday, and that the market is thin, I'm expecting to see some price fluctuations within Friday's range with the 1.0840 - 1.0850 zone acting as a support for buyers.

Day's news (GMT 3):

  • Europe: International Workers' Day;
  • 09:30 Australia: RBS commodity index SDR (YoY) (Apr);
  • 10:15 Switzerland: real retail sales (Mar);
  • 12:00 Eurozone: European Commission releases economic growth forecasts;
  • 14:45 USA: Treasury sec Mnuchin's speech;
  • 15:30 USA: core personal consumption expenditure - price index (Mar), personal spending (Mar), personal income (Mar);
  • 16:30 Canada: RBC manufacturing PMI (Mar);
  • 16:45 USA: Markit manufacturing PMI (Mar);
  • 17:00 USA: ISM manufacturing PMI (Mar), ISM prices paid (Mar);
  • n/a USA: loan offcier survey.

EURUSD rate on the hourly. Source: TradingView

Intraday forecast: low: 1.0855, high: 1.0917, close: 1.0894.

On Friday, 70% of the day's trade volume occurred within a range from 1.0883 to 1.0932. This was considered fair by both buyers and sellers. The highest volume and highest amount of trading activity for the day was found at 1.0897 level. So, this was found to be the fairest price for the day.

If the price exits this range below 1.0833, it could make buyers vulnerable. There is a strong support at 1.0840/1.0850. If buyers don't turn up at this level, both buyers and sellers will have to find a new fair price for the May holidays.

Sellers closed the gap from the 24th of April by 50%. Considering that Le Pen has made it into the second round of voting, the Euro will be jittery this week. Investors fear that Russian hackers will lead her to victory. Admittedly, this week's payrolls will be of little interest to traders as they all focus on the election.

I'm expecting a V-model to form on the daily with a minimum of 1.0855 and a maximum of 1.0917. Activity on the market should be higher during the US session.

Positives for the Euro ( ):

Fundamental:

( ) US president Donald Trump favours a weaker dollar;

( ) French elections: Emmanuel Macron won the first round of voting by a small margin;

( ) S&P has reaffirmed Germany's credit rating at AAA/A-1 with a stable outlook;

Technical (short-term):

( ) Small speculators have increased long positions by 4,253 to 66,753 contracts and short positions by 493 to 61,457 contracts. net-long positions have grown from 3,759 to 5,296 contracts;

( ) According to myfxbook, the Short/Long ratio as of 6:15 EET is 71%/28%, lots: 9912/3929 (previous day: n/a/n/a), positions: 29755/12793 (previous day: n/a/n/a);

( ) US 10Y bond yields: 2.289% (down 0.47% from 28/04/17);

( ) EURGBP (D): AO, AC - up;

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

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

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

Negatives for the Euro (-):

Fundamental:

(-) ECB head: revision of ECB's monetary policy not required at present;

(-) On Friday, the 28th of April, according to CME Group's FedWatch, the probability of a rate hike in Mat has risen from 4.3% to 5.3%, has fallen in June from 70.6% to 66.6% and in July from 73.5% to 70.3%;

(-) Tension surrounding the situation with North Korea. Increased demand for safe haven assets;

(-) The US Congress has approved a temporary budget, avoiding a government shutdown for the time being. A week's delay will give time for knocking out a draft budget for the rest of the fiscal year (end of September). It became clear on the 1st of May that Republicans and Democrats had settled on a compromise to keep the budget going until the 30th of September;

Technical (short-term):

(-) According to data from  25/04/17, Large speculators on the Chicago Exchange have reduced their long and short positions. There are currently more short positions than longs. Long positions have fallen by 32,054 to 153,394 contracts, while short positions have fallen by 25,030 to 181,340 contracts. Net-short positions have increased from 7,023 to 27,946 contracts;

(-) German 10Y bond yields: 0.321 (up 7.0% from 28/04/17);

(-) US 10Y bond yields in the US have risen by 0.55% to 2.295%;

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

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

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

(-) EURUSD (D): Stochastic (5,3,3), CCI (20) - down.



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