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EUR/USD: conditions right for an upwards correction

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The Euro/dollar pair closed slightly down after trading on Thursday. The market closed the daily candlestick at the middle of its intraday range at 1.0866 level.

The British pound fell during the European session, bringing the other major currencies down with it after the Bank of England's meeting. The Euro, however, was saved from falling by growth on the EUR/GBP cross. The Euro subsequently fell against the dollar to 1.0839 in response to positive unemployment and consumer price inflation figures coming out of the US.

Sellers were unable to gain a foothold on the lows as the technical picture on the hourly timeframe was indicating an upwards price rebound on three different grounds. It so happened that a drop in US 10Y bond yields to 2.382% helped buyers to realise their own plan.

According to the latest data from CME Group's FedWatch, the probability of interest rates being raised by the Fed in June is still at 83.1%. The probability in July has slipped from 84.7% to 84.4% and in September from 91.8% to 90.4%.

Market expectations:

Trading has stabilised at around 1.0867 level. The daily candlestick from the 11th of May has a range of 54 pips. This means that the price could return to yesterday's low.  As there are three bases for this on the hourly timeframe, today I'm predicting a rise for the Euro in the form of a correction to 1.0891.

On Friday, traders will be focusing their attention on data coming out from Germany, the Eurozone and the USA. Most interesting for them will be the US statistics on consumer price inflation and retail sales. Accelerated inflation would increase the probability of interest rates being raised in June. Right now, that probability is 83.1%.

Day's news (GMT 3):

  • 09:00 Germany: preliminary GDP growth (Q1), CPI (Apr);
  • 12:45 Eurozone: industrial production (Mar);
  • 15:30 USA: CPI (Apr), CPI core (Apr), retail sales (Apr);
  • 16:00 USA: Fed's Evans speech;
  • 17:00 USA: Michigan consumer sentiment index (May);
  • 19:30 USA: FOMC member Harker's speech.

EURUSD rate on the hourly. Source: TradingView.

Intraday forecast: low: 1.0855, high: 1.0891, close: 1.0879.

Because of the upwards rebound from the low of 1.0839 on the hourly timeframe, a V-model has formed. Buyers weren't strong enough to close the day at around 1.0855, so it's a weak model for a reversal. There's a risk of the rate returning to 1.0839.

On three bases (1.0863, 1.0853 and 1.0839), I'm expecting quotes to rise to 1.0891 (45 degrees from 1.0839). Given that the Stochastic oscillator is in the sell zone, the rate should start to rise from 1.0855. A market drop will also reveal the intentions of the Euro-bulls.

If the price starts rising as European markets open, then it's worth considering a breakout of the channel with a target of 1.0900 by 15:00 (MT4).

Positives for the Euro ( ):

Fundamental:

( ) US president Donald Trump favours a weaker dollar;

Technical (short-term):

( ) According to data from 02/05/17,  large speculators on the Chicago exchange have reduced short positions and slightly increased long positions. Long positions have gone up by 1,987 to 155,381 contracts and short positions have been reduced by 19,029 to 162,311 contracts. Net-short positions have fallen from 21,016 to 6,930 contracts;

( ) According to myfxbook, the Short/Long ratio as of 7:07 EET is 54%/45%, lots: 12416/10419 (previous day: 13961/12380), positions: 37879/29015 (previous day: 40730/35879);

( ) German 10Y bond yields: 0.431% (up 0% from 11/05/17);

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

( ) EURGBP (D): CCI (20) - up;

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

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

Negatives for the Euro (-):

Fundamental:

(-) ECB head: revision of ECB's monetary policy not required at present. On the 10th of May, he added that the bank is in no hurry to raise interest rates or to halt its asset purchasing program;

(-) On Thursday, the 11th of May, according to CME Group's FedWatch, the probability of a rate hike in June remains 83.1%. The probability in July has fallen from 84.7% to 84.4% and in September from 91.8% to 90.4%;

Technical (short-term):

(-) Small speculators have reduced their short positions by 3,768 to 62,985 contracts. Short positions have fallen by 2,147 to 63,604 contracts. Last week, the number of open short positions surpassed that of long positions. Net-short positions currently stand at 619 contracts;

(-) US 10Y bond yields: 2.401% (up 0.5% from 10/05/17);

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

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

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

Built into the price:

(-) 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;

( ) Emmanuel Macron is France's president-elect;

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



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