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EUR/USD: quotes expected to recede towards the trend line

Previous:

After trading on Friday, the Euro closed with some nice growth against the greenback. The price consolidated within a narrow range around 1.1108 during the Asian session. As trading opened in Europe, the rally continued. By the time of the US session, Euro-bulls had returned the rate to 1.1172. New York trading brought it up to 1.212.

While political tensions in the US have eased slightly, the general sentiment around the dollar remains the same. Its slide could be triggered by commodity currencies, who have strengthened on the back of rising oil prices.

Brent oil futures for July 2017 on the London ICE have risen by 2.09% to 53.61 USD per barrel, and on the WTI by 2.03% to 49.66 USD per barrel. In the space of a week, they've grown by 5.5% to 53.66 USD per barrel. Oil quotes rose without any large bounces on the expectation that OPEC will extend their agreement by 9 months to reduce oil production on the 25th of May.

FOMC member James Bullard added fuel to the fire when he cast doubt on the feasibility of an interest rate hike taking place in June, noting the economic slowdown that took place in the first half of this year as well as the fact that the labour market has been in decline since the Federal Reserve's most recent meeting.

Market expectations:

In Asia, the Euro is trading down. Despite the sharp rise in oil prices, commodity currencies haven't followed suit. Gold and yen are falling. On Friday, the 19th of May, according to CME Group's FedWatch, the probability of a rate hike in June had risen from 73.8% to 78.5%, in July from 75.8% to 80.0% and in September from 82.4% to 86.1%.

Looking around, I can't see any indications of further growth for the Euro. Looking at technical factors and the Euro index, the road to 1.13 is open for Euro-bulls. Given that the Euro closed up on Friday, I'm expecting today's movements to go against that, as is my general rule. Quotes should fall to the trend line. So as to avoid risky sales, I think it's better to avoid trading today, as there are no clearly defined sell signals and the profit/risk ratio is low.

Day's news (GMT 3):

  • 13:00 Germany: German Buba monthly report;
  • 17:00 USA: FOMC member Harker's speech;
  • 17:30 Australia: CB leading indicators (Mar). USA: FOMC member Kashkari's speech;
  • 20:30 Australia: RBA deputy governor Debelle's speech.

EURUSD rate on the hourly. Source: TradingView

Intraday forecast: low: 1.1161, high: 1.1210 (current in Asia), close: 1.1180.

On Friday the 19th of May, the Euro closed up. Euro-bulls held at the 112th degree. In Asia, the Euro is currently down, but the bulls are unlikely to give up so easily. The Euro's rebound isn't very deep, so there is a risk of an updated maximum. In this regard, there are more willing sellers than buyers for the Euro.

For Monday, I'm expecting the Euro to go against Friday's movements towards the trend line at 1.1160 or the 45th degree at 1.1159. If there isn't a flat on Friday, then I always go for opposing movement the following Monday. Statistics from the beginning of this year show that Monday's candlesticks have closed in the opposite direction to Friday's 79% of the time (15 weeks out of 19). If trading on the Euro closes up on Friday, it'll close down on Monday and vice versa. This effect was weaker in 2016, with it only working 61.5% of the time. Movements in general were weaker and corrections not very deep. Personally, I won't be trading today. If you're looking to sell Euros, I suggest waiting until the Stochastic indicators on the EUR/USD and EUR/GBP pairs are in the sell zone.

Positives for the Euro ( ):

Fundamental:

( ) US president Donald Trump favours a weaker dollar;

Technical (short-term):

( ) According to data from 16/05/17,  large speculators on the Chicago exchange have increased their long positions while reducing short ones. Long positions have increased by 10,500 to 162,981 contracts. Short positions have fallen by 3,863 to 123,690 contracts. Net-long positions have risen by 14,363 to 39,291 contracts;

( ) According to myfxbook, the Short/Long ratio as of 7:17 EET is 84%/15%, lots: 28082/5105 (previous day: 28678/6296), positions: 66326/15611 (previous day: 64703/19491);

( ) German 10Y bond yields: 0.363% (up 3.71% from 19/05/17);

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

( ) EURGBP (D): AO - up;

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

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

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

( ) Small speculators have increased their long positions by 2,245 to 72,566 contracts. Short positions have fallen by 3,353 to 63,016 contracts. Net-long positions have fallen by 1,108 to 9,550 contracts;

(-) On Friday, the 19th of May, according to CME Group's FedWatch, the probability of a rate hike in June has risen from 73.8% to 78.5%, in July from 75.8% to 80.0% and in September from 82.4% to 86.1%;

Technical (short-term):

(-) US 10Y bond yields: 2.235% (up 0.31% from 19/05/17);

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

(-) EURGBP (D): AC, 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 has been sworn in as the new president of France;

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



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