On Wednesday, the 9th of August, trading on the euro/dollar closed slightly up, leaving a long shadow behind it after a drop. The euro’s drop to 1.1689 may have been triggered by cross pairs involving the euro. An exchange of threats between US President Donald Trump and North Korean Supreme Leader Kim Jong Un has pushed investors towards safe haven assets, i.e. the Swiss franc, Japanese yen and gold. Protective stop levels on long positions may have been triggered below 1.1715. The sharp rise to 1.1751 was triggered by a sharp drop in US 10Y bond yields. I don’t have any other explanation for the fluctuations we’ve seen on the euro/dollar pair.
Day’s news (GMT 3):
- 11:30 UK: manufacturing production (Jun), industrial production (Jun), total trade balance (Jun).
- 15:00 UK: NIESR GDP estimate (Jul).
- 15:30 Canada: new housing price index (Jun).
- 15:30 USA: PPI (Jul), initial jobless claims (4 Aug), PPI ex food & energy (Jul).
- 17:00 USA: Fed’s William Dudley speech.
- 20:00 USA: 30-year bond auction.
- 21:00 USA: monthly budget statement.
EURUSD rate on the hourly. Source: Trading View
After the euro depreciated to 1.1689, I wasn’t expecting to see the price by the LB line. The price rebounded from the 112th degree. I’ve already stated the reason for this above, the sharp drop in US 10Y bond yields.
From the LB and trend line, the euro/dollar rate fell to 1.1727. What more can we expect from the euro? Because of the sharp upwards rebound from 1.1689, the daily candlestick closed to form a hammer (reversal candlestick). In order for this formation complete, the price needs to reverse upwards from its current level and move past 1.1770. In this scenario, there’s no need to short the euro, as the trend will bring the price back up to 1.1825.
On the hourly timeframe of US 10Y bonds, there is a similar pattern to that on the EURUSD pair. The only thing is that when US bond yields rise, the euro should fall against the dollar. Because of this, today I’ve decided to predict a drop for the euro to 1.1689 on the back of a rise in US 10Y bond yields. The Democratic People’s Republic of Korea is continuing to escalate the situation, so keep an eye on gold, the yen and the franc.
Right now, because of yesterday’s daily candlestick, I can’t see the euro falling any further than 1.1689.