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EURUSD: the euro is set to strengthen

Previous

On Friday the 27th of July, trading on the dollar closed in negative territory. It has fallen in price all over the market, having lost all the positions earned during the European session. Sales followed after the publication of US GDP data for Q2.

The data coincided with the forecast, so buyers began to close long positions on the dollar before the weekend. The "buy the rumour - sell the fact" principle has worked.

I believe that after the release of a strong report, the Fed will continue to gradually raise rates to keep the economy from overheating.

Fig. 1 Dynamics of the dollar on Friday

By the end of the week, almost all major currencies showed a decline. The largest decline in relation to the US dollar was shown by the euro (-0.56%). Then came the New Zealand dollar (-0.24%), the Australian dollar (-0.22%), the Swiss franc (-0.15%), and the British pound (-0.15%). Both the Canadian dollar (0.65%) and the Japanese yen (0.41%) strengthened.

Fig. 2 Dynamics of the dollar for the week

US data:

The preliminary value of the US GDP for the Q2 2018 was 4.1% (forecast: 4.1%, previous: 2.2%).

The final value of the MCSI for July was 97.9 (forecast: 97.1, preliminary value: 97.1).

Day's news (GMT 3):

  • 10:00 Switzerland: KOF leading indicator (Jul).
  • 11:30 UK: net lending to individuals (MoM) (Jun), consumer credit (Jun), mortgage approvals (Jun).
  • 12:00 Eurozone: consumer confidence (Jul), industrial confidence (Jul), economic sentiment indicator (Jul), business climate (Jul).
  • 15:00 Germany: CPI (Jul).
  • 17:00 US: pending home sales (MoM) (Jun).

Fig 3. EURUSD H3 chart. Source: TradingView

Current situation:

During my two-week holiday, the euro fell 28 points. It can be said that nothing has changed during my absence, so I will not waste time getting acquainted with previously published data and news.

In two weeks, a sideways trend was formed with a range of 0.93% or 109 pips. The middle of the range is at 1.1682. For today, it will act as the target level for euro bulls.

All the news items mentioned above will not have a strong impact on the Forex market, so I did not take them into account in my forecast today.

We are following the dynamics of US bond yields. There is a risk that 10-year bonds will fall from 2.96% to 2.94%, which will weaken the US dollar and strengthen the euro. Crosses on the euro are trading in positive territory, therefore, in light of the drop in US10Y yields, the euro could rise against the dollar to the upper border of the corridor  (1.1755).

The key events of this week will be: the indices of business activity in China, the Eurozone, the United Kingdom, and the United States, the rate decisions of the Bank of Japan, the US Federal Reserve, and the Bank of England, and the US labor market (NFP) report for July.


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