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EURUSD: FOMC minutes bring buyers back to the market

Previous:

On Wednesday, the Euro closed up. A weakening of the dollar came after the publication of the FOMC's minutes. They show that almost all FOMC members are in agreement over a plan to gradually reduce the central bank's balance sheet over the course of the year. They also came to the consensus that they need to hold off on raising interest rates in order to determine whether or not the current economic slowdown is temporary. The dollar reacted to this with a drop. US 10Y bond yields have fallen to 2.255%. The Euro/dollar rate rose to 1.1220 and this growth continued in Asia to 1.1245.

The minutes haven't changed the market view on interest rates. According to CME Group's FedWatch, the probability of a rate hike in June is 83.1%, 84.4% in July and 88.6% in September.

Market expectations:

Today (Thursday), trader attention will be focused on the OPEC meeting, in which the decision may be taken to extend the length of the agreement reached on 30/11/16 for reducing oil production. This will have an effect on the price of oil as well as commodity currencies, with the latter affecting the majors.

I imagined several different scenarios today, but in the end, I haven't gone with any of them. The situation is 50/50. The price could renew the maximum of 1.1268 as well as return to the support at 1.1175.

Day's news (GMT 3):

  • 11:00 Australia: RBA assistant governor Debelle's speech;
  • 11:30 UK: GDP (Q1), total business investment (Q1), BBA mortgage approvals (Apr), index of services (Mar);
  • 15:30 Canada: corporate profits (Q1). USA: initial jobless claims (19 May), wholesale inventories (Apr);
  • 17:00 USA: FOMC member Brainard's speech;
  • 17:30 USA: EIA natural gas storage change (19 May);
  • 19:00 Canada: Bank of Canada deputy governor Leduc's speech;
  • 20:00 Eurozone: ECB member Constâncio's speech;
  • All day: OPEC meeting.

EURUSD rate on the hourly. Source: TradingView

Intraday forecast: low: n/a, high: n/a, close: n/a.

Sellers didn't manage to break the 1.1170 support. The FOMC's minutes brought buyers back to the market, bringing the price up to 1.1245 in their wake, including Asia's trading. The growth in quotes slowed down around the 67th degree.

The balance line has been broken through. Euro-bulls are trying to bring the price back to the previous maximum reached at 1.1268. This is technically possible in the form of a U-model. Should the exchange rate rise above 1.1268, we will see increased short positions on the Euro. Why? Because a lot of traders will think they can create a double top, or M-model. This is a logical position to take. However, if we don't see a major seller enter the market at around 1.1250, then the reversal model of the trend will break down and growth will accelerate towards 1.1330/50. A major seller could be a bank trying to protect 1.12 level.

I've written above that I couldn't choose a scenario for today. Apart from the U-model and double top, the price could also move sideways to form a triangle. There are precursors for this. Still, given the current situation, I'd rather watch the market from the sidelines today.

Positives for the Euro ( ):

Fundamental:

( ) The minutes from the FOMC's last meeting indicate that committee members have agreed to hold off raising interest rates in order to determine whether or not the current economic slowdown is temporary;

( ) US president Donald Trump favours a weaker dollar;

( ) Political tensions in the USA;

( ) German chancellor Angela Merkel: the Euro is to weak because of the ECB's ultra-loose monetary policy;

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 7:15 EET is 79%/22%, lots: 25313/6356 (previous day: 24271/7204), positions: 64733/17310 (previous day: 63012/23374);

( ) US 10Y bond yields: 2.255% (down 1.31% from 24/05/17);

( ) 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;

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 Wednesday, the 24th of May, according to CME Group's FedWatch, the probability of a rate hike in June is 83.1%, 84.4% in July and 88.6% in September;

Technical (short-term):

(-) German 10Y bond yields: 0.402% (down 2.42% from 24/05/17);

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

(-) EURGBP (D): AC, CCI (20), 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 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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