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EURUSD: time for an upwards correction

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On Wednesday the 2nd of May, trading on the euro closed down. The single currency has shed 146 pips against the greenback over the May holidays to reach 1.1938. The pair went on a rollercoaster ride following the US Federal Reserve’s interest rate decision.

The FOMC decided to maintain its key federal funds rate within its current range of 1.50 – 1.75%. While acknowledging that inflation is on the rise, the regulator gave no indication that it would increase the frequency of rate hikes. I think it was this that caused the pair to shoot up to 1.2025, although sellers managed to snuff out this attack at around 1.2030 and bring the rate back down below 1.20.

Day’s news (GMT 3):

  • 11:30 UK: Markit services PMI (Apr).
  • 12:00 Eurozone: CPI (Apr), PPI (Mar).
  • 15:00 Eurozone: ECB’s Constâncio speech.
  • 15:30 Canada: imports (Mar), exports (Mar).
  • 15:30 USA: trade balance (Mar), initial jobless claims (27 Apr), nonfarm productivity (Q1), unit labor costs (Q1).
  • 16:45 USA: Markit services PMI (Apr).
  • 17:00 USA: ISM services PMI (Apr), factory orders (Mar).
  • 19:00 Switzerland: SNB Chairman Jordan speech.

Fig 1. EURUSD hourly chart. Source: TradingView

In today’s (3rd of May) Asian session, the biggest grower is the Aussie dollar. It’s received a boost from the publication of positive Australian economic data. A few other currencies have followed suit, which has brought about some correctional movement on the greenback.

At the time of writing, the euro is trading at 1.1986. Since yesterday’s drop, the euro has corrected by 60%; 45 degrees from 1.1938. The bulls took the rate to the trend line at 1.2020. My forecast puts today’s high at 1.2011.

The hourly cycles suggest either an upwards correction or sideways movement up until the 9th of May. If you take a look at the daily and weekly timeframes, you’ll see that the price has reached the support and the correction is justified. After the 9th of May, we could see a new wave of sales and the start of a bear market with targets of 1.1855 and 1.1710.

From today’s economic releases, I think it most important to take note of consumer and producer inflation in the Eurozone for April as well as the ISM services PMI in the US. In the aftermath of the FOMC meeting, there might not be a reaction to this at all.



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