Alpari - Analytics

Alpari

777.25 6.25/10
72% of positive reviews
Real

EUR/USD: awaiting a renewed minimum

Previous:

Trading on the EUR/USD pair closed down on Tuesday. The single currency depreciated against the dollar on the back of a rise in US 10-year bond yields and a drop in their German equivalent.

By the end of the day, US 10-year bond yields had risen by 0.72% to 2.494%. German 10-year bond yields fell by 3.17% to 0.319%. The price found some support at around the 1.0560 mark, where the pair has been caught in a sideways trend for the last 17 hours or so.

Market expectations:

Expectations of an interest rate hike in the US are facilitating a downwards correction of the euro. After speeches from Janet Yellen and other Fed members last week, the probability of a rate hike in March reached 86.4% on Monday.

Six days remain until the Federal Reserve announces their decision. It's worth noting that the probability of a rate hike has started to decrease. On Tuesday the 7th of March, according to CME Group's FedWatch, the probability of interest rates being raised in March dropped from 86.4% to 84.1%, in May from 87.5% to 85.5%, and in June from 92.7% to 92.2%.

Traders on Wednesday will be looking at the ADP jobs report, and on Friday at the official statistics from the US Department of Labor. Friday's payrolls should tell us whether or not the Fed will raise interest rates.

On the hourly timeframe, the euro has completed a correctional model similar to a triangle. Cyclical analysis points towards a reversal of the downwards movement sometime in the middle of the day. For Wednesday, I'm forecasting a drop in the rate to 1.0537 with a subsequent rebound to around 1.0563.

Day's news (GMT 3):

  • 10:00 Germany: industrial production (Jan);
  • 11:15 Switzerland: CPI (Feb);
  • 15:30 UK: Spring budget;
  • 16:15 Canada: housing starts (Feb), USA: ADP employment change (Feb);
  • 16:30 Canada: building permits (Jan), labour productivity (Q4), USA: nonfarm productivity (Q4), unit labour costs (Q4);
  • 17:00 USA: wholesale inventories (Jan);
  • 18:30 USA: EIA crude oil stocks change (Mar 3).

EURUSD rate on the hourly. Source: TradingView

Intraday forecast: low: 1.0537, high: 1.0574, close: 1.0560.

My predictions about the EUR/USD pair for Tuesday came off in full. The rate corrected up to the 22nd degree at 1.0602 and subsequently fell to 1.0558 on the back of a rise in US bond yields.

The euro found some support at 67 degrees. The pair has been in a correctional phase for the last 17 hours. In the next few hours, there is a high risk of the currency pair renewing yesterday's minimum. Given that the ECB is unlikely to make any changes to its monetary policy during Thursday's meeting, I'm predicting a drop in the euro to 1.0537.

Looking at cycles and patterns, I'm expecting some growth beyond the rate's current level with a rebound from the 67th degree. I have a feeling that before an upwards correction, we'll see sellers taking out stop levels on long positions under 1.0558. Don't forget that the long/short ratio is currently at 38%/61% and that the EUR/GBP cross is ready for a downwards correction after yesterday's growth.

As cycles are suggestive of a reversal at around 14:00 EET, I'm expecting a sharp upwards rebound at around this time to 1.0563.

Keep an eye on US and German bonds. If US 10-year bond yields fall to 2.4930, the euro might restore to 1.0602 without falling.

Positives for the euro ( ):

Fundamental:

( ) US president Donald Trump favours a weaker dollar;

( ) The threshold for acceptable US government debt of 20.1 trillion USD may be reached by March this year. This will create headaches for new US president Donald Trump. A new law on the debt ceiling will come into force on the 16th of March 2017;

( ) Greece may need less money than the IMF had planned for;

Technical (short-term):

( ) According to data from 28/02/17, large speculators on the Chicago Exchange have increased their short and long positions. Long positions have grown by 10,546 to 142,762 contracts, while short positions have grown by 4,293 to 187,304 contracts. Net short positions have fallen from 50,779 to 44,542 contracts.

( ) EURGBP (W):  the CCI (20), AC and the Stochastic (5,3,3) are moving upwards;

( ) EURGBP (D): the cross is in a phase of growth. The AO and AC are moving upwards;

( ) EURUSD (M): the Stochastic (5,3,3) is moving upwards;

( ) EURUSD (D): between the price and the CCI is a bullish divergence, the price rebounded from the minimum on 22/02/17, the CCI has intersected the -100 level from bottom to top, the fast line has intersected the slow line on the Stochastic (5,3,3) and the trend line from 02/02/17 has been broken through;

( ) In Asia, US 10-year bond yields have fallen by 0.09% to 2.509%;

Negatives for the euro (-):

Fundamental:

(-) The ECB has no plans to curtail its QE program. According to the minutes of the latest meeting, most members of the Governing Council don't believe it necessary to reduce the amount of stimulus (long-term impact);

(-) According to CME Group's FedWatch Tool, on Tuesday, the probability of a rate hike in March has fallen from 86.4% to 84.1%, in May from 87.5% to 85.5%, and in June from 92.7% to 92.2%;

(-) There's a high level of political uncertainty in Europe (French elections and Brexit). Ex-Prime Minister Alain Juppe has ruled himself out of participation in the French presidential elections;

(-) Greece is unable to reach a deal with its creditors for financial assistance;

(-) The ECB will hold a meeting on Thursday;

Technical factors (short-term):

(-) According to data from 28/02/17, small speculators have increased their short positions by 1,481 contracts and reduced their long positions by 210;

(-) German 10-year bond yields: 0.319% (down 6.17% from 07/03/17). US 10-year bond yields: 2.511% (up 0.68% from 07/03/17);

(-) Long/short ratio according to myfxbook as of 5:13 EET: 38%/61%, lots: 11979/19122 (previous day: 14073/18231), positions: 35229/45836 (previous day: 40401/44557)

(-) EURUSD (W): AO, AC and CCI are moving downwards;

(-) EURUSD (D): Stochastic (5,3,3): the fast line has intersected the slow line from top to bottom;

(-) EURGBP (D): the cross has reached the trend line. Buyers are attempting to induce a rebound from it. The Stochastic (5,3,3) has crossed downwards.

Built into the price:

(-) President of the Philadelphia Fed, Patrick Harker, has hinted at a rate hike in March;

(-) President of the Dallas Fed, Kaplan, says that it's better to raise rates sooner rather than later;

(-) President of the San Francisco Fed, John Williams, says that March is a good time for the FOMC to seriously consider a rate hike;

(-) FOMC member Lael Brainard says that the US economy is growing and that a rate hike would soon be appropriate;

(-) Head of the FOMC, Janet Yellen, has said that interest rates might be raised in March;

(-) Head of the Fed in Richmond, Lacker, has said that losing control over inflation could prove very costly;

(-) Vice-president of the Federal Reserve, Stanley Fischer, echoes his colleagues' comments about rate hikes;

( ) François Bayrou, leader of the "Democratic Movement" party, has ruled out running for the presidency and thrown his weight behind independent candidate Emmanuel Macron;

( ) Marine Le Pen has had her EU parliamentary immunity from prosecution lifted for political reasons.


To leave a comment you must or Join us


By visiting our website and services, you agree to the conditions of use of cookies. Learn more
I agree