On Friday the 27th of October, trading on the euro/dollar pair closed down. Euro bulls held on to 1.1620 level until the last moment. Pressure on them increased after the publication of strong 3rd quarter GDP data from the US. The reading came to 3% against a forecast of 2.5%. The euro dropped to 1.1580 on this news.
The situation in Catalonia put additional pressure on buyers. The Catalonian parliament has voted for an official declaration of independence. This brought German bond yields down while pushing gold up.
It was later revealed that Spanish Prime Minister, M Rajoy, triggered Article 155 of the Spanish Constitution, bringing Catalonia under direct rule. Carles Puigdemont, the president of Catalonia, along with all his ministers and parliamentarians, have been sacked by the Spanish government. The government of Catalonia, however, has refused to resign.
The euro tried to recover, but the correction only started from 1.1575, which was brought about by a drop in US 10Y bond yields. They dropped on the news that Jerome Powell, a member of the Fed’s board of governors and an advocate of loose monetary policy, has emerged as a favourite for the position of Chair.
Day’s news (GMT 3):
- 10:00 Germany: retail sales (Sep);
- 11:00 Switzerland: KOF leading indicator (Oct);
- 12:30 UK: M4 money supply (Sep),mortgage approvals (Sep), consumer credit (Sep);
- 13:00 Eurozone: consumer confidence (Oct), economic sentiment indicator (Oct), industrial confidence (Oct), business climate (Oct);
- 15:30 USA: personal consumption expenditures – price index (Sep), personal income (Sep), personal spending (Sep);
- 16:00 Germany: consumer price index (Oct).
Fig 1. EURUSD rate on the hourly. Source: TradingView
The euro remains under pressure since the ECB’s meeting and Mario Draghi’s subsequent press conference. The euro is trading up in Asia, and is strengthening on all the crosses. This is a technical correction and doesn’t have anything fundamental driving it. The price is rising without volume, which is rather strange. In my forecast, I’m allowing for growth to the 45th degree, which is currently sitting at 1.1629.
I’d like to bring your attention to one important factor. Since there’s a head and shoulders model forming on the daily timeframe, a double divergence between the AO indicator and the price is most likely forming on the hourly timeframe. I’ve based my forecast on the indicators and the price.
The stochastic oscillator is in the sell zone. Because of this, before selling the euro, we should keep an eye on the dynamics of the euro/pound cross as well as US 10Y bond yields. For the downwards movement to continue, we need US bond yields to rise and for the cross to fall.