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EUR/USD: the price has exited the triangle downwards

Previous:

The euro closed slightly down after Wednesday's trading. Trader activity was low during the US session as market participants waited on the vote in Congress to dismantle Obamacare. The vote has now been pushed back to Friday after the instigators of the motion failed to enlist the support of the requisite number of congressmen. Before closing, the euro/dollar was hovering around the 1.0783 mark.

Market expectations:

On the hourly chart, a symmetrical triangle at formed at 1.0783 level. During trading in Asia, the price came out of this triangle downwards. The euro fell against the dollar to 1.0760.

Given that the euro has broken through the trend line on the daily timeframe, and that the dollar index has rebounded from the support, today I'm expecting the single currency to continue its slide against the greenback to around the 1.0747 mark. Additional support for the dollar will come from growing US bond yields.

Day's news (GMT 3):

  • 11:30 Germany: Markit PMI composite (Mar);
  • 12:00 Eurozone: Markit PMI composite (Mar);
  • 12:30 UK: BBA mortgage approvals (Jan);
  • 15:00 USA: Fed's Evans speech;
  • 15:30 Canada: CPI (Feb), BoC CPI core (Feb);
  • 15:30 USA: durable goods orders (Feb), durable goods orders ex transportation (Feb);
  • 16:45 USA: Markit manufacturing PMI (Mar), Markit services PMI.

EURUSD rate on the hourly. Source: TradingView.

Intraday forecast: low: 1.0747, high: 1.0786 (current in Asia), close: 1.0757.

My predictions for the euro yesterday didn't come off. The single currency came under pressure before the session closed from the falling EUR/GBP cross (after the release of retail sales figures in the UK) and growing US bond yields.

The euro index and US 10Y bond yields have both broken through the trend line. Since trading opened in Asia, the exchange rate has come out of the symmetrical triangle on the hourly timeframe downwards. As such, I can only see the euro weakening further against the US dollar.

Cyclical analysis and patterns are giving a mixed picture. Cycles indicate that the euro will strengthen before the end of the day, while patterns point to a sharp slide (60-80 pips). When the cycles and patterns contradict one another, one can expect to see sideways movement on the currency pair with fluctuations in both directions. It's still not clear which way the vote in Congress on Obamacare will go.

The potential for a slide will disappear if the trend line is broken though at the maximum 1.0824. Given the current situation, as well as that of the previous trading day, I'm sitting on the fence.

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 came 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;

( ) Head of the ECB, Mario Draghi, has hinted that the central bank may not need to provide any further stimulus to revitalise Europe's economy. From April to December 2017, the ECB will reduce their monthly assets purchases to 80 to 60 billion EUR;

( ) ECB bosses have discussed the possibility of raising interest rates before the QE program comes to an end;

( ) Ewald Nowotny, a member of the ECB's governing council, has said that the bank could raise the deposit rate before the main refinancing rate;

Technical (short-term):

( ) According to data from 14/03/17, small and large speculators on the Chicago Exchange have increased their long and short positions. Long positions have grown by 11,151 to 148,509 contracts, while short positions have grown by 8,909 to 187,216 contracts. Net short positions have fallen from 58,766 to 38,707 contracts. Small speculators have reduced their short positions by 11,095 to 58,313 contracts. Net long positions have risen by 3,158 contracts.

( ) Short/long ratio according to myfxbook as of 07:38 EET: 75%/24%, lots: 29272/9309 (previous day: 31371/7227), positions: 68276/31988 (previous day: 73834/28068);

( ) German 10-year bond yields: 0.431% (up 5.89% from 23/03/17);

( ) EURGBP (W):  the CCI (20), AO, AC and the Stochastic (5,3,3) are up. The trend line has been broken through;

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

( ) EURUSD (W): The Stochastic (5,3,3), AO, AC, and CCI (20) are up;

( ) EURUSD (D): the AO indicator is up;

Negatives for the euro (-):

Fundamental:

(-) According to CME Group's FedWatch Tool on Wednesday  the 22nd of March, the probability of a rate hike in May remains 6.4%. The probability in June has grown from 49.6% to 54% and in July from 57.1% to 60.8%;

(-) Political uncertainty in Europe (French elections and Brexit);

(-) Fed member Evans is expecting 2-3 rate hikes in 2017. The Federal Reserve will make a decision about the next hike in June;

(-) President of the Philadelphia Fed, Harker, announced that the Federal Reserve will continue to gradually increase interest rates throughout 2017;

Technical factors (short-term):

(-) US 10-year bond yields: 2.419% (up 0.37% from 23/03/17); In Asia, US 10Y bond yields have risen by 0.66% to 2.434%;

(-) EURUSD (M): the AO and AC indicators are down;

(-) EURUSD (D): the AC Stochastic (5,3,3) and CCI (20) are down;

(-) EURGBP (D): the AO, AC, CCI (20), and Stochastic (5,3,3) indicators are down;

Built into the price:

(-)  The Ex-Prime Minister of France, Alain Juppe, has ruled himself out of participating in the presidential election;

( ) 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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