On Thursday the 1st of March, trading on the euro/dollar closed up. The pair dropped to the 157th degree at 1.2155 on the back of a rising dollar. From there, the euro rebounded to reach 1.2273, marking a rise of 118 pips.
The US dollar and US stock markets have taken a big hit from this announcement as it’s seen by many to be threatening a trade war with the EU and China. President Trump has announced a 25% import duty on steel and 10% on aluminium.
A spokesperson for China’s Ministry of Foreign Affairs said that China would take its own protective measure should such duties be imposed, while the EU has also promised a firm response.
The US stock market’s decline of around 1.3% - 1.6% led to a mass closing of riskier positions on the Forex market. The safe haven assets (gold, Swiss franc, yen) all closed the day up. The euro, as a funding currency, also ended the day up against the dollar.
As a result of all this, Jerome Powell’s speech was given secondary importance. New York Fed President William Dudley said that he wouldn’t rule out the possibility of 4 interest rate hikes this year.
- USA - initial jobless claims (23 Feb): 210,000 (forecast: 226,000, previous: 220,000).
- USA - ISM manufacturing PMI (Feb): 60.8 (forecast: 58.7, previous: 59.1).
- USA - Markit manufacturing PMI (Feb): 55.3 (forecast: 55.9, previous: 55.9).
- Canada - Markit manufacturing PMI (Feb): 55.6 (forecast: 55.8, previous: 55.9).
- USA – personal income (Jan): 0.4% (forecast: 0.3%, previous: 0.4%), personal spending: 0.2% (forecast: 0.2%, previous: 0.4%).
Day’s news (GMT 3):
- 10:00 Germany: retail sales (Jan).
- 12:30 UK: PMI construction (Feb).
- 13:00 Eurozone: PPI (Jan).
- 16:30 Canada: GDP (Q4), GDP (Dec).
- 18:00 USA: Michigan consumer sentiment index (Feb).
- 21:00 USA: Baker Hughes US oil rig count.
Fig 1. EURUSD hourly chart. Source: TradingView
I correctly predicted a testing of the 157th degree with a subsequent rebound. The price missed its target by a single pip. The imposition of tariffs on steel and aluminium by Trump pushed the euro up to 1.2288. At the time of writing, the euro is trading at 1.2278. The price is currently hovering around the 112th degree. Having weighed all the pros and cons, I’ve concluded that the euro’s rise will continue to 1.2306. This scenario will go out the window, however, if the hourly candlestick closes below 1.2260.
If European stock indices start trading up and the retreat to safe haven assets stops, the price will most likely return to the LB balance line. This would be the best scenario; a return to the LB at 1.2223.