On Tuesday, trading on the euro/dollar closed in the red. The Euro depreciated against the greenback by 0.46% over the course of the day. The intraday range came to 74 pips and was over 200 on the GBP cross. The Euro's collapse followed that of the British pound. The EUR/GBP cross provided support until the US dollar went on the offensive.
Clearly, investors have turned a blind eye to Donald Trump's failings and started buying US shares and selling bonds. The DIJA and S&P500 indices were bolstered by 0.73%. US 10Y bond yields grew by 2.06% to 2.472%.
The Scottish parliament's vote in favour of holding a second independence referendum, along with British Prime Minister Theresa May signing Article 50 to officially start the UK's withdrawal from the EU, both weighed heavily on the British pound.
The British pound has recovered slightly since trading opened in Asia. Market participants, however, are nervous about the UK's letter notifying Brussels of their intention to leave the European Union. Still, this is already built into the price, so there's no real cause for concern.
At the time of writing, our currency pair is trading at 1.0807 level. The trend line runs through 1.0792, so this is the level at which the single currency's slide could potentially be halted. US bond yields are in the green, and if they can rise above 2.445%, we can expect a subsequent drop and a corresponding rise for the Euro.
Day's news (GMT 3):
- 09:00 Switzerland: UBS consumption indicator (Feb), Germany: import price index (Feb);
- 11:00 Switzerland: Credit Suisse economic outlook (Feb);
- 11:30 UK: net lending to individuals (Feb), M4 money supply (Feb), mortgage approvals (Feb);
- 16:20 USA: FOMC member Evans' speech;
- 17:00 USA: pending home sales (Feb);
- 18:30 USA: FOMC member Rosengren's speech;
- 19:50 EU: ECB member Prat's speech;
- 20:15 USA: FOMC member Williams' speech.
EURUSD rate on the hourly. Source: TradingView.
Intraday forecast: low: n/a, high: n/a, close: n/a.
As the EUR/GBP cross provided support on Tuesday, the EUR/USD rate traded within the 1.0850 - 1.0873 range until the US stock market opened. As US stock indices and bond yields rose, the Euro slid to the 90th degree at 1.0799. The trend line and the 45th degree couldn't stop buyers from bringing the price down.
The reversal zone is located between 1.0750 - 1.0776 levels (135 - 112 degrees). The trend line from 1.0525 runs through 1.0791 level. Like yesterday, the trend line could be broken through and the price could test the 112th degree.
I'm not making a prediction today because I'm not sure how traders will react to the news about Brexit and a second Scottish independence referendum. The exact date of Article 50's triggering has only been known for about a week. Also, Theresa May has confirmed several times that her government would block any attempt at a second referendum. Still, what triggered such an aggressive selloff of sterling remains a mystery to me.
Positives for the euro ( ):
( ) 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;
( ) On the 24th of March, Donald Trump withdrew his proposed healthcare bill to replace Obamacare from the US Congress' agenda.
( ) According to data from 21/03/17, large speculators on the Chicago Exchange have significantly increased their long and decreased their short positions. Long positions have grown by 10,138 to 158,646 contracts, while short positions have fallen by 10,325 to 176,891 contracts. Net short positions have fallen from 38,707 to 18,245 contracts. Small speculators have increased their long positions by 3,811 to 65,280 contracts and short positions by 4,779 to 63,093 contracts. Net long positions have fallen from 3,158 to 2,178 contracts.
( ) Short/long ratio according to myfxbook as of 07:23 EET: 65%/34%, lots: 31253/16232 (previous day: 34751/6549), positions: 67713/39342 (previous day: 69240/22454);
( ) EURGBP (W): the CCI (20), AO and AC are up;
( ) EURGBP (D): the AO, CCI (20) and Stochastic (5,3,3) indicators are up;
( ) 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 (-):
(-) According to CME Group's FedWatch Tool on Monday the 27th of March, the probability of a rate hike in May has fallen from 6.4% to 4.3%, in June from 54% to 48.5% and in July from 60.8% to 56.1%;
(-) Political risks in Europe (French elections);
Technical factors (short-term):
(-) German 10-year bond yields: 0.396% (down 1.49% from 28/03/17);
(-) US 10-year bond yields: 2.427% (up 1.97% from 28/03/17);
(-) In Asia, US 10Y bond yields have grown by 0.59% to 2.423%;
(-) EURGBP (W): The Stochastic (5,3,3) is down;
(-) EURGBP (D): the AO indicator is down;
(-) EURUSD (M): the AO and AC indicators are down;
(-) EURUSD (D): the 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;
(-) 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;
( ) 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;
( ) 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
( ) The Greek government has made some progress in its talks with international creditors on the second stage of their reform program;
( ) 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;
( ) ECB member Lautenschläger warns that it's time to prepare for a change in the bank's policy.