On Tuesday the 29th of May, trading on the euro closed down once again. This makes it 23 bearish candlesticks since the 17th of April. The euro is under pressure from a broadly resurgent US dollar as well as increased political risks in Italy and Spain. During trading in Europe, the pair dropped to 1.1510, after which an upwards correction began.
Parties in Italy are still unable to form a government. In Spain, Prime Minister Mariano Rajoy could face a vote of no confidence on Friday.
Investors are shorting the euro over fears that Eurosceptic parties may get even more votes at the next election and force an in-out EU referendum.
Day’s news (GMT 3):
- 09:45 France: consumer spending (Apr), GDP (Q1).
- 10:00 Switzerland: KOF leading indicator (May).
- 10:00 Germany: harmonised index of consumer price (May).
- 11:00 Germany: unemployment rate (May), unemployment change (May).
- 11:00 Switzerland: ZEW survey – expectations (May).
- 12:00 Eurozone: consumer confidence (May), industrial confidence (May), economic sentiment indicator (May), business climate (May).
- 15:15 USA: ADP employment change (May).
- 15:30 Canada: current account (Q1), industrial product price (Apr).
- 17:00 Canada: BoC interest rate decision and statement.
- 21:00 USA: Fed’s Beige Book.
- 23:30 USA: API weekly crude oil stock.
Fig 1. EURUSD hourly chart. Source: TradingView
On Tuesday the 29th of May, the euro dropped 130 pips to reach 1.1510 after trading opened in Europe. The D3 MA line and the 180th degree provided support to buyers during the drop. From the 180th degree, the pair ricocheted 67 degrees upwards and the price has been fluctuating between these degrees for the last 16 hours.
Sellers have enough power in their reserves to make it to 1.1450. I’ve come to this conclusion taking into account the rate at which the euro is dropping. A trend line runs through this level, which is drawn on the daily timeframe through 1.0340 (low from 03/01/17) and 1.0569 (low from 10/04/17).
The euro has declined significantly due to geopolitics. On intraday timeframes, it feels oversold. In order for the bears to even reach 1.1450, they will need to relinquish control of the reins a little bit, although they must be careful not to let the bulls push too high. I wrote in yesterday’s review that when markets are fluctuating on the back of geopolitical developments, technical analysis indicators stop working. The only things that work are breakouts and Fibonacci levels.
I’m not making a forecast today because our pair will shoot off in various directions on the back of any developments from Italy or Spain. It’s even risky to short the euro from the 67th degree at 1.1600 because after a sustained decline in quotes, the rate could easily recover to around 1.1660/70. All the major euro crosses are trading up, so after a breakout of the trend line, one can expect our main pair to recover to the balance line at 1.16. One should only consider selling at 1.16 if volumes are low.