On Friday the 23rd of February, trading on the euro closed slightly down. After a turbulent few days that saw price fluctuations of nearly 100 pips, markets finally pulled themselves together after the publication of the FOMC minutes. They struck an optimistic tone with regards to the state of the US economy and further interest rate hikes.
Day’s news (GMT 3):
- 10:00 UK: Nationwide housing price index (Feb).
- 12:30 UK: BBA mortgage approvals (Jan).
- 16:30 USA: Chicago Fed national activity index (Jan).
- 18:00 USA: new home sales (Jan).
Fig 1 EURUSD hourly chart. Source: TradingView
Today, I’ll be focusing mostly on technical analysis. In Asia, the euro has recovered from 1.2280 to 1.2319. Judging by newsfeeds, the dollar is being dragged down by the BoJ’s governor Haruhiko Kuroda speech. He didn’t say anything new, but reiterated the need to try and keep inflation at 2% and that the central bank would maintain an ultra-accommodative policy to do so.
I wanted to predict a drop for the euro as my primary forecast, but instead I’ve gone for a rise. The negative sentiment on the dollar in Asia, the euro’s rise on the hourly cycles, the drop in US10 bond yields, and the fact that the euro is hovering around the trend line all had an effect on my decision.
At this stage, I can’t see the euro rising any further than 1.2360 for several reasons. First of all, traders and investors are anticipating new Fed Chair Jerome Powell’s first address to Congress this week. It’s unclear what the reaction will be and what he’ll say on monetary policy. The first speech is always very important for markets.
Secondly, the upcoming parliamentary elections in Italy (4th of March) will have a negative effect on the euro. On the same day, the Social democratic party in Germany is set to have an internal vote on creating a coalition government with Angela Merkel.
The euro could start declining again at any moment. For Monday, the euro’s target is 1.2348.