On Thursday the euro/dollar fell from a session minimum of 1.0746 to 1.0620. The fall was 126 points and stopped near the 112th degree. The dollar rose after the release of strong data from the US and Yellen speaking before congress. The Fed chief said that the US economy is now showing persistent success and a tightening of monetary policy could be viable. Her announcement increased further the likelihood that the Fed will increase the interest rate at their December meeting. Additional pressure on the euro came from the sales of American and European bonds.
In Asia the euro dropped to 1.0582. The price bounced from 135 degrees and the MA line D3. Investors are continuing to sell off bonds. The yield for 10-year American bonds has increased by 2.18% to 2.328%.
The expectations of a rate rise and bond sales mean that we’re nearing parity. Over the last fortnight the euro has lost 7 figures (700 points) against the dollar. After president-elect Trump’s victory the euro has only looked down.
The price has reached a key support at 1.0597 and I mentioned this yesterday. Let’s have another look at the weekly time frame (see below).
Day’s News (GMT 3):
- 13:30, SNB’s Maechler and Bundesbank’s Weidmann, in addition to Saint Louis Fed’s Bullard to speak;
- 16:30, Canadian CPI for October;
- 17:30, Kansas city Fed’s George to speak;
- 18:00, US index for leading indicators from Conference Board for October.
Euro/ rate on the weekly. Source: TradingView dollar
Yesterday’s words from Yellen were enough to push the euro/dollar down to the key 1.0597 support. This has made a line which runs through the 1.0462 and 1.0517 minimums.
The pressure on the euro is massive. If the protective stops below the line for long positions pop off, the euro can’t avoid a further fall. The closest supports are 1.0517 (minimum for 3rd December, 2015) and 1.0391 (lower limit of channel A).
Euro/ rate on the hourly. Source: TradingView dollar
Intraday forecast: minimum: 1.0565, maximum: 1.0629 (current Asian), close: 1.0590.
As I said above, the pressure on the euro is massive. Due to this I reckon we’ll see a hunt for stops taking place and a test of 1.0565. Since the price is at an important support level, I think we will see a sharp upward bounce from 1.0565. If we don’t then there are two target levels for the euro weakening that I have highlighted on the graph.
If the yields for American and European bonds fall then there will be a fall in the quotes via a bounce to 1.0633. It’s likely that we will even see a jump to 1.0644 (38.2% from 1.0746 to 1.0582).