On Thursday the 26th of October, trading on the euro/dollar pair closed down. The euro came under pressure after the ECB announced its decision to extend its QE program by 9 months. ECB head Mario Draghi cited concerns over relatively low inflation and added that some significant stimulus measures would be required to keep it up.
In the US session, the euro continued to fall after news that the US House of Representatives had followed the Senate in approving the 2018 budget. Now, President Trump is free to bring in the reforms he promised. By the end of the day, the euro had collapsed to 1.1641.
Day’s news (GMT 3):
- 09:45 France: consumer confidence (Oct);
- 10:15 Eurozone: ECB’s Praet speech;
- 14:00 Eurozone: ECB’s Weidman speech;
- 15:30 USA: GDP annualised (Q3), personal consumption expenditure prices (Q3);
- 17:00 USA: Michigan consumer sentiment index (Oct);
- 20:00 USA: Baker Hughes US oil rig count.
Fig 1. EURUSD rate on the hourly. Source: TradingView
The euro bulls are still disappointed by the ECB’s decision to extend its QE program by 9 months with purchases at 30bn EUR a month. Furthermore, the US dollar continued to strengthen its position after the US Congress approved the 2018 budget.
So, what can we expect from the euro now?
From a high of 1.1838, the rate has dropped 1.79% (212 pips). At the time of writing, the euro is trading at 1.1634.
The price is approaching the D3 line (the maximum price divergence on the hourly timeframe). If we see some aggressive sales, we could see the price go off the charts to the D3 – D4 range. Upon reaching the D3 MA line, the price will try to return to the LB balance line. Since all MA lines are currently looking downwards, there’s a risk of the euro dropping lower by way of a saw-tooth model (with three lows).
In the event of a rebound, the price won’t make it to the LB line on the first attempt. It could do so with some fundamentals to help it along, but today’s economic calendar is rather bare. After a sharp drop of more than 200 pips, a new waves of sales is starting from the D2 line. It currently coincides with the 45th degree. It will be lower than this when we get to the US session.
Since the neckline (1.1662) was broken through, a head and shoulders model has started to form. For this, I’ve highlighted three targets: 1.1595, 1.1515, and 1.1330.