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EURUSD: rebound to the 45th degree

Previous:

On Friday the 28th of July, the euro/dollar closed up. Buyers brought the rate back to 1.1764, taking advantage of US data and a weak US dollar. The US’s preliminary GDP reading for the second quarter of 2017 came out as expected at 2.6%. Despite the high GDP value, price components came out at low levels. The previous reading was revised downwards.

US 10Y bond yields fell by 2.14% to 2.287%, bringing the dollar down with it. Canadian data heaped further pressure on the dollar. Canada’s GDP grew by 0.6% in May (forecast: 0.6%, previous reading: 0.2%). This high value triggered a drop on the USDCAD pair.

US statistics:

  • US preliminary GDP for the second quarter of 2017 came out at 2.6% (forecast: 2.6%, previous reading revised from 1.4% to 1.2%).
  • The Michigan University consumer sentiment index fell to 93.4.
  • Canada’s GDP in May grew by 0.6% (forecast: 0.6%, previous reading: 0.2%).

Day’s news (GMT 3):

  • 09:00 Germany: retail sales (Jun);
  • 11:30 UK: net lending to individuals (Jun), M4 money supply (Jun), mortgage approvals (Jun);
  • 12:00 Eurozone: CPI (Jul), CPI core (Jul), unemployment rate (Jun);
  • 15:30 Canada: raw material price index (Jun), industrial product price (Jun);
  • 16:45 USA: Chicago PMI (Jul);
  • 17:00 USA: pending home sales (Jun).

EURUSD rate on the hourly. Source: TradingView

The euro/dollar stopped its upwards movement around the 90th degree, close to the 1.1777 high from the 27th of July. This isn’t a particularly importance resistance, but today is Monday, so we could see a reversal of Friday’s movements. The odds of this working out against the trend are not very high. However, with the indicators on the 4-hour timeframe having reversed downwards, there is a window for a correction.

On Friday, the latest weekly COT (Commitments of Traders) report from the CFTC came out, according to which, last week, large speculators reduced their long and short positions. Small speculators saw an increase in short positions and a decrease in long ones.

Large speculators’ short positions fell by 375 to 86,206 contracts, while short positions fell by 2,575, to 64,720 contracts. Net long positions are currently at 21,486 contracts. Open interest contracts have risen by 14,423 to 543,872, up from 529,449 the previous week.

Large speculators increased their hedged positions ahead of the FOMC meeting. Small speculators, in contrast, shorted the euro. After the meeting, the euro went up, but since the last 3 days of the week aren’t included in the report, it’s difficult to say how they adjusted their long and locked positions. You can find the reports themselves on the open channel “telegram:@notes for traders”.

In Asia, the euro should correct to around 1.1731. In my forecast, I’m expecting to see a downwards correction to 1.1710, at the 45th degree. Given that the hourly oscillator has reversed upwards, but is looking down on the 4-hour timeframe, we could see some swings at the start of the European session. Ideally, I’d like to see the euro fall to 1.1670/75. It’s not worth trying to keep short positions open with a bullish trend. Either their working volume must be reduced, or they should be closed when the rate drops. For this, we can use 1.1710 and 1.1683. I’m not looking at any news today.


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