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EURUSD: the market is thin on US's day off

Previous:

Trading on the Euro closed down on Friday. After an unsuccessful attempt at returning to 1.1250, buyers started closing their long positions before the long weekend. Pressure on the single currency increased with the release of US statistics. Their second GDP reading for the first quarter of 2017 came out better than expected and was revised upwards from 0.7% to 1.2% (forecast: 0.9%). During the New York session, the EUR/USD rate fell to 1.1161. Drifting into the support area at 1.1160/70, the pair has entered a phase of sideways movement.

Market expectations:

The Euro's rally, brought about by  increased political tensions in the US, has caused Monday against Friday to fail for two weeks in a row. Today might also not work out. Now, I'll explain why.

Markets are closed today in China, the US and UK. Because of this, currency markets will be rather thin (reduced trading volumes). There are also no important news releases planned. The price is currently sitting on the support from the 22nd of May at 1.1161. Given that the revised GDP data published on Friday caused the probability of a rate hike in June to be raised from 87.7% to 88.8%, there is an increased risk of breaking out of 1.1160 and moving towards the triggered stops at 1.1190/1.12.

I would add that on Friday, at the 1.2000 mark, open interest increased by 347 to 1,810 contracts. This means that buyers have hedged their open long positions on spot and futures markets through buying put options. Although there is a high risk of the price going down, I'm going to predict a correction to the lb balance line, from where a weekly pin bar can be activated and an assault can be made on 1.1160 and 1.11 levels.

Day's news (GMT 3):

  • Markets closed in China, USA and UK;
  • 11:00 Eurozone: M3 money supply (Apr), private loans (Apr);
  • 16:00 Eurozone: ECB president Mario Draghi's speech;
  • 20:00 Euroone: ECB memeber Weidman's speech.

EURUSD rate on the hourly. Source: TradingView

Intraday forecast: low: 1.1156, high: 1.1200, close: 1.1189.

On Friday, the Euro/dollar rate fell to 1.1161. An M-model has formed on the daily chart and a pin bar on the weekly chart. Technical factors indicate that the Euro will weaken to 1.11, at least to 1.1118 at the 112th degree.

Given that markets are closed today in China, the US and UK, I'm forecasting some correctional movement towards the lb balance line. I think it's better to launch an assault on 1.1160 and 1.11 levels from Tuesday, with a higher volume. During holidays, the most you can do is conduct some reconnaissance in order to determine the locations of the first protective stops below 1.1160.

As I've written above, buyers that are sitting on long positions and waiting for the Euro to strengthen further, have hedged them with puts on the options market. Bearish signals are now beginning to appear on various timeframes. Because of this, I can understand the worry among buyers who bought themselves some put options at the 1.12 mark.

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 23/05/17,  large speculators on the Chicago exchange have increased their long positions while reducing short ones. Long positions have increased by 7,883 to 170,864 contracts. Short positions have fallen by 18,406 to 105,284 contracts. Net-long positions have risen by 26,289 to 65,580 contracts;

( ) Small speculators have increased their long positions by 2,875 to 75,441 contracts. Short positions have fallen by 1,707 to 61,308 contracts. Net-long positions have increased by 4,583 to 14,133 contracts;

( ) According to myfxbook, the Short/Long ratio as of 7:11 EET is 76%/23%, lots: 21983/6631 (previous day: 25313/6356), positions: 58611/20066 (previous day: 63639/19036);

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

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

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

( ) EURUSD (W): AO, AC - 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;

(-) As of Friday, the 26th of May, according to CME Group's FedWatch, the probability of a rate hike in June  has risen from 87.7% to 88.8%, in July from 88.3% to 89.4% and in September from 91.5% to 92.3%;

Technical (short-term):

(-) German 10Y bond yields: 0.328% (down 9.64% from 26/05/17);

(-) US 10Y bond yields: 2.250% (down 0.22% from 26/05/17);

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

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

(-) EURUSD (W): 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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