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EURUSD: price trading in the middle of a narrowing range

Previous:

Trading on the Euro on Thursday closed down. The price continued to trade within a daily range of 1.1160 to 1.1270. The pair fell to 1.1194. Buyers didn't allow sellers to push the price down any further as they received some support during the US session from the EUR/GBP cross.

The pound came under pressure from the UK's unexpected downgrading of the first quarter's GDP figures, as well as the news that an army bomb disposal squad was dispatched to a college in Manchester after reports of a suspicious package, thought to contain explosives.

US statistics:

The number of initial jobless claims in the US in the week ending on the 20th of May came to 234,000 (forecast: 238,000, previous reading: 233,000).

Market expectations:

In Asia, the GBP/USD pair has fallen by 75 pips to 1.2867. The EUR/GBP cross is growing, which is propping the Euro up. The Aussie dollar is looking rather weak at the moment due to the collapse in oil prices, falling against the US dollar by 90 pips since yesterday.

It's worth taking note of the latest data from CME Group's FedWatch. The probability of interest rates being raised in June has gone up from 83.1% to 87.7%, in July from 84.4% to 88.3% and in September from 88.6% to 91.5%.

So, the overall picture on the EUR/USD pair looks contradictory. On the one hand, the market is expecting a hike in interest rates. On the other hand, Euros are being bought on the crosses. The crosses could smooth out the dynamics of our main pair, but if the dollar strengthens across the board, our par will fall in any case.

The US will today publish their revised GDP figures. The second reading doesn't tend to have much of an effect on currency markets, but given that the Fed is worried about the rate of the US economy's decline, a revised value in favour of the dollar could see it sharply rise across the market.

Day's news (GMT 3):

  • 15:30 USA: GDP annualised (Q1), durable goods orders (Apr);
  • 17:00 USA: Michigan consumer sentiment index (May);
  • All day, Eurozone: ECB financial stability report.

EURUSD rate on the hourly. Source: TradingView

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

The Euro/dollar pair fell from 1.1250 to 1.1194 on Thursday. At the time of writing this review, the Euro is worth 1.1201. Given that sellers didn't manage to return the price to 1.1170 level yesterday, the risk of the rate returning to the 1.1238/40 region has increased.

The GBP/USD and AUD/USD pairs, with their slide this morning, point towards growth for the US dollar, while a breakout of the trend line on US 10Y bond yields indicates a slide in store for the dollar. US10Y bonds are currently at 2.240%. Taking into account the latest data from CME Group's FedWatch, the probability of a rate hike in June has grown from 83.1% to 87.7%. When the market is expecting a rate hike, bond yields tend to rise. Also, when US bond yields rise, the US dollar strengthens. The Euro's situation remains unclear. We need to wait for the rate to exit the range and to trade on a bounce from these level before it exits.

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 7:31 EET is 79%/20%, lots: 25313/6356 (previous day: 25313/6356), positions: 63639/19036 (previous day: 64733/17310);

( ) US 10Y bond yields: 2.255% (no change from 25/05/17);

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

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

(-) As of Thursday, the 25th of May, according to CME Group's FedWatch, the probability of a rate hike in June  has risen from 83.1% to 87.7%, in July from 84.4$ to 88.3% and in September from 88.6% to 91.5%;

Technical (short-term):

(-) German 10Y bond yields: 0.363% (down 9.70% from 25/05/17);

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

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