The US dollar index fell by 0.12% to 95.15 on Monday. Correspondingly, the euro/dollar rate rose by 0.11% to 1.1478 ( 13 pips). The euro closed up against the dollar thanks to growth on the euro/pound cross, which rose by 0.49% to 0.8793. On the back of that, the pound/dollar fell by 0.37% to 1.3053.
So what caused the divergence among these pairs? Talks about the UK’s departure from the EU continued in Brussels yesterday. Since the economic calendar was virtually empty yesterday, speculators focused mostly on this. However, nothing significant has yet been announced as a result of these talks.
Day’s news (GMT 3):
- 11:30 UK: CPI (Jun), PPI input (Jun), PPI output (Jun), retail price index (Jun), DCLG house price index (Jun), CPI core (Jun);
- 12:00 Germany: ZEW current situation (Jul), ZEW economic sentiment (Jul);
- 15:30 USA: import price index (Jun);
- 16:30 UK: BoE governor Carney’s speech;
- 17:00 USA: NAHB housing market index (Jul);
- 23:00 USA: net long-term TIC flows (May).
EURUSD rate on the hourly. Source: TradingView
On Monday, an intraday V-model formed on the euro/dollar, with a low of 1.1435. The price corrected to the LB and trend line, from which it restored to 1.1487 on the back of a rising euro/pound cross. In Asia, quotes have reached 1.1538.
The US dollar collapsed across the market on the news that the Affordable Care Act (Obamacare) would not be repealed in the near future, despite a concerted effort from the White House. Senators Mike Lee and Jerry Moran both announced yesterday that they would be opposing the proposed Republican healthcare bill in its current form.
Later on, the RBA released its minutes, causing a sharp rise on the Aussie dollar, supporting sessional trends against the dollar on other pairs. Now there is negative sentiment surrounding the dollar on currency markets. This was brought about by the reaction of investors who had counted on Obamacare being repealed. Expectations were not met, and they started closing their long positions on the US dollar. US 10Y bond yields have fallen by 1.22% to 2.29%.
Interest towards the euro is increasing due to rumours that the ECB may follow the lead of the Bank of Canada and Bank of England in setting a date for starting to reverse the QE program.
Today and yesterday, the euro is being strengthened by the news. It allowed buyers to push the euro up to 1.1538, despite the cycles. Intraday cycles had indicated a weakening of the euro over the next 22-24 hours. If these prove to be stronger than the emotions of speculators, the euro will return to the trend line at 1.1484 (45 degrees). A drop for the euro below 1.1511 will signal the end of the news effect.
If the Asian movements continue into Europe, growth will speed up. There’s a key resistance on the weekly timeframe at 1.1595/1.16. I can’t see the euro going higher than 1.16 at the moment. Today, I’ll be watching from the sidelines.