On Wednesday the 6th of December, trading on the euro/dollar closed down. The greenback made gains against most of the majors after significant progress was made in Congress regarding tax reform. Senate Republicans have agreed to talks with the House of Representatives to discuss the new legislation. Markets expect the two houses to reconcile their respective versions of the bill in the coming days. Meanwhile, markets are also bracing themselves for Friday’s NFP report as well as the upcoming FOMC meeting to be held on the 13th of December.
Day’s news (GMT 3):
- 10:00 Germany: industrial production (Oct).
- 10:45 France: trade balance (Oct).
- 11:00 Switzerland: foreign currency reserves (Oct).
- 11:30 UK: Halifax house prices (Nov).
- 13:00 Eurozone: GDP (Q3);
- 16:30 USA: initial jobless claims (1 Dec).
- 16:30 Canada: building permits (Oct).
- 18:00 Canada: Ivey PMI (Nov).
- 23:00 USA: consumer credit change (Oct).
Fig 1. EURUSD hourly chart. Source: TradingView
I didn’t make a forecast on Wednesday because, with the euro trading at 1.1845, the situation was ambiguous. As trading opened in Europe, the euro bounced off the previously broken trend line and recommenced its decline with renewed vigour.
The euro initially returned to the 112th degree at 1.1799 before moving towards the lower boundary of the A-A channel. Interestingly, the euro dropped at the same time as US bond yields. The pressure on the EURUSD pair came from the EURGBP cross.
In Asia, our pair is currently trading sideways while the euro crosses are rising. This suggests that the dollar is attacking on all fronts and euro sellers are preparing to hit a new daily low.
Given that a bullish divergence has formed between the AO indicator and the 1.1801 and 1.1781 lows, once the 1.1781 low is retaken, this will form a double bullish divergence; a technical sign of a rebound.
I’ve gone for a rebound at 1.1772 because the 1365th degree runs through this level. The area between the 112th and 135th degrees is, in my view, a reversal zone. From 1.1772, I’d like to see a three-wave formation aiming at 1.1709. Keep an eye on the euro/pound cross. A triangle is forming on the 4-hour timeframe. Exiting it downwards would speed up the euro’s decline against the US dollar. I wouldn’t recommend buying euro in anticipation of a rebound as the correction could go on for as long as 40 hours without a rise. Take note of when the price breaks through the TR3 line and what sort of trading volumes are present at the time.