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EUR/USD: the euro has fallen on the back of a rise in US bond yields

Previous:

On Wednesday, trading on the euro closed down. During trading in New York, the euro fell to 1.0535 as the release of statistics in the US fell kindly in the dollar. The number of new private sector jobs in February exceeded expectations. The previous figure was revised and upgraded.

The euro subsequently bounced up to 1.0563 as German 10-year bond yields rose by 15.3%. The effect from the European debt market was minimal.

On this news, US 10-year bond yields rose by 1.74% to 2.562%. The probability of a rate hike by the Fed in March has risen from 84.1% to 90.8%, in May from 85.5% to 91.4%, and in June from 92.2% to 95.8%.

The number of new private sector jobs came to 298,000 (forecasted: 190,000, previous figure revised from 246,000 to 261,000).

Market expectations:

In Asia, US 10-year bond yields have grown by 0.77% to 2.571%. Correspondingly, the EUR/USD rate has fallen to 1.0529. Sellers are showing some bearish behaviour in anticipation of a rate hike by the Fed on the 15th of March, trying to bring the price down to around 1.0495.

For Thursday, traders will be focusing on the ECB meeting and the press conference with Draghi that will follow. I don't make forecasts on days when there is a press conference with the head of the ECB, or on payrolls day (Friday). These are two events that will have a short-term effect on the euro, but at the same time, it will pose a problem for traders who are using technical analysis in their trading strategies.

Day's news (GMT 3):

  • 09:00 Japan: machine tool orders (Feb);
  • 09:45 Switzerland: unemployment rate (Feb);
  • 15:30 USA: Challenger job cuts (Feb);
  • 15:45 Eurozone: ECB interest rate decision;
  • 16:30 Eurozone: ECB statement and press conference;
  • 16:30 Canada: new housing price index (Jan), capacity utilisation (Q4);
  • 16:30 USA: initial jobless claims (Mar 3), import price index (Feb).

EURUSD rate on the hourly. Source: TradingView

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

My prediction of a fall in the euro yesterday to the 90th degree played out perfectly. Some strong figures from the ADP brought about a sharp rise in US bond yields and a strengthening of the dollar across the board.

In Asia, the euro has fallen to 1.0529, breaking past the 90th degree. The reversal zone can be found between 1.0511 and 1.0486. Given that the ECB has a press conference scheduled for after the meeting today, my graph doesn't contain any predictions, just one markup of price levels.

The only thing I have to add is that the euro index has been trading within a range of 99.53 - 99.86 for the last two days. The current value is 99.56, which puts the price at the lower boundary of the range and the trend line. The index for the EUR/GBP cross currently stands at 30.5%, so in the event of a downwards correction, the index will leave this range downwards and break through the trend line. The target for US 10Y is 2.64%, meaning that the euro could go lower than 1.0495.

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;

( ) The Greek government has made some progress in its talks with international creditors on the second stage of their reform program;

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.

( ) German 10-year bond yields: 0.369% (up 15.3% from 08/03/17);

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

( ) EURGBP (D): the AO is moving upwards;

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

( ) EURUSD (D): The AC and CCI (20) indicators are moving upwards;

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, as of Wednesday the 8th of March, the probability of a rate hike in March has risen from 84.1% to 90.8%, in May from 85.5% to 91.4%, and in June from 92.2% to 95.8%;

(-) 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;

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

(-) Excellent ADP data (for the dollar);

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;

(-) US 10-year bond yields have risen to 2.562% (up 01.74% from 08/03/17). In Asia, yields have risen by 0.77% to 2.571%;

(-) Long/short ratio according to myfxbook as of 7:30 EET: 31%/68%, lots: 11000/23800 (previous day: 11979/19122), positions: 30156/55841 (previous day: 35229/45836)

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

(-) EURUSD (D):  A false breaking through of the trend line. The Stochastic (5,3,3) and CCI (20) indicators are moving downwards;

(-) EURGBP (D): the cross has reached the trend line and a reversal hammer has formed. The Stochastic (5,3,3) and CCI (20) indicators are moving 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.


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