On Wednesday, trading on the euro closed down. Market volatility was high as Janet Yellen’s pre-prepared remarks were published a well as while she was giving testimony to Congress. She remarked that the US economy was growing fast enough for another rate hike and to continue normalising the Fed’s balance sheet.
The dollar strengthened against its major rivals on this news. In theory, it should have begun to weaken against the euro by the end of the day, given that the US regulator doesn’t feel it necessary to sharply raise interest rates. US bond yields sharply fell in response to the comments. Depending on the data to come out over the course of the rest of the year, the American central bank may decide to raise interest rate one more time this year, and that’s all. I think it most likely that there’s some crowd psychology at play here. The market swung downwards and buyers started closing their long positions, which caused the euro to slide by 98 pips to 1.1392.
Day’s news (GMT 3):
- 09:00 Germany: CPI (Jun);
- 10:15 Switzerland: producer and import prices (Jun);
- 11:30 UK: BoE credit conditions survey;
- 15:30 Canada: new housing price index (May);
- 15:30 USA: PPI (Jun), initial jobless claims (7 July), PPI ex food and energy (Jun);
- 17:00 USA: Fed’s Yellen testifies;
- 18:30 USA: Fed’s Evans speech;
- 20:00 USA: FOMC member Brainard speech, 30-year bond auction;
- 21:00 USA: monthly budget statement (Jun).
EURUSD rate on the hourly. Source: TradingView
A breakout of the trend line occurred at the low of 1.1312, but the subsequent rebound to 1.1392 made it a false one. The euro has been finishing rather weakly over the past few days. Buyers didn’t allow the formation of a bearish engulfing.
The euro rate has since recovered to 1.1444. The 45th degree runs through 1.1445. My forecast is based purely on technical factors, but let’s not forget that Janet Yellen will be speaking again today and that US bond yields are down. The price could easily return to 1.1490 and continue higher.
It’s also worth noting that the price is rising with low trading volume. Consider the idea that buyers who didn’t manage to close their long positions in time for Yellen’s testimony should use the current rebound to cash in on them. There should be a higher volume, but there isn’t. Because of this, there are two potential scenarios. The first is that the pair will trade flat at its current level until the opening of the US session (accumulation phase), and then with increased volume, the price will go up with the trend to 1.15. The second scenario is that the price will fall to 1.1380 or lower, and those buyers still sitting on long positions will incur losses as their stop levels are activated. You’ll have to play it as you see it. All traders have a different line of sight, so while buyers may be right on one timeframe, sellers could be right on another.
I remind you once again that this forecast does not account for Janet Yellen’s testimony.