On Friday the 19th of January, despite a price surge to 1.2296, trading on the euro/dollar pair closed down. The euro dropped against the dollar to 1.2214 before trading closed in Chicago. The euro’s decline was brought about by a rise in US bond yields as well as market participants awaiting the results of an SPD vote in Bonn on whether or not to enter formal coalition talks with Angela Merkel’s party.
US 10Y bond yields have risen from 2.61% to 2.66% (high from 2014).
The greenback received also some support from the President of the San Francisco Federal Reserve, John Williams, who said that the Fed would continue on its path of gradual rate hikes in 2018 and is looking at about 3 rate hikes for the year.
Michigan consumer sentiment index – 94.4.
Day’s news (GMT 3):
- 14:00 Germany: German Buba monthly report.
- 16:30 Canada: wholesale sales (Nov).
- 16:30 USA: Chicago Fed national activity index (Dec).
Fig 1. EURUSD hourly chart. Source: TradingView
Despite the fact that the price deviated from projections at the beginning of the European session, the price hit its target during the US session.
On Monday, trading on the euro opened with an upwards gap after the US government shutdown on Saturday and the agreement to hold coalition talks over the weekend in Germany. Trading on the euro opened at 1.2270. Now, sellers have closed this gap completely and the euro is trading at 1.2226.
The US government has temporarily shut down. The White House has blamed the Democrats for this due to them having blocked federal funding.
The US economy, however, doesn’t directly depend on the government. Traders have adapted to this turn of events and so there isn’t expected to be long-term fallout from this.
What will affect markets is not the fact of a government shutdown, but its duration. The last government shutdown lasted for 16 days, running from the 1st to the 17th of October, 2013.
Top representatives from both the Republican and Democratic parties held talks on Sunday. The US Senate is to vote on the extension of government funding at 06:00 GMT.
At their party conference in Bonn, the Social Democratic Party (SPD) voted for official coalition talks with Angela Merkel’s Christian Democratic Union (CDU). This is expected to result in the formation of a new coalition government with Angela Merkel at the helm.
So, what can we expect from the euro today?
After a decline in the Asian session from 1.2272 to 1.2216, a correction is on the cards, with quotes expected to rise to 1.2255. My forecast has the euro dropping from 1.2236/40. My forecast is for the next 2 days. If the DTR1 line holds its ground, we can expect the euro to open at around 1.2162 on Tuesday. For now, sellers need to break through the 1.2210 – 1.2215 range.