On Wednesday the 1st of August, trading on the euro closed down against the US dollar. The euro’s slide was brought about by growth on the dollar across the board as well as a rise in US10Y bond yields.
Bond yields hit 3% ahead of the conclusion of the Federal Reserve’s two-day meeting as well as in response to the US Treasury announcing plans to raise long-term debt issuance to 78bn USD in this quarter, compared to 73bn USD in the previous quarter.
The Federal Open Market Committee (FOMC) decided to leave interest rates unchanged at 1.75 – 2.00%. This decision matched market expectations. In its statement on monetary policy, the FOMC said that it expects to raise interest rates gradually. The euro closed at 1.1659.
- ISM manufacturing PMI (Jul): 58.1 (forecast: 59.5, previous: 60.2).
- ADP employment change (Jul): 219k (forecast: 186k, previous reading revised from 177k to 181k).
Day’s news (GMT 3):
- 11:30 UK: PMI construction (Jul).
- 12:00 Eurozone: PPI (Jun).
- 14:00 UK: BoE interest rate decision – Markets expect the regulator to raise the key rate by 0.25% to 0.75%. Volatility will be high despite the fact that this has already been factored into the price.
- 14:30 UK: BoE’s Governor Carney speech.
- 15:30 US: initial jobless claims (27 Jul).
- 17:00 US: factory orders (Jun).
Fig 1. EURUSD hourly chart. Source: TradingView
My two-day forecast has worked out. The euro rose to 1.1748, and then over the course of 39 hours, returned to the lower boundary of the range at 1.1650.
In Asia, the euro dropped to 1.1654 against the greenback. In my new forecast, I’m expecting a rebound from the support with a target around the 45th degree. I don’t know what the low will be in the Asian session, but I’ve made my calculation from 1.1650.
I don’t see the euro going any higher than 1.1705, because there’s a risk of dropping to 1.1615. According to the US Trade Representative Robert Lighthizer, on Wednesday, President Trump ordered an increase in tariffs on 200bn USD worth of Chinese goods from 10% to 25%. Most of the euro crosses are trading up, but there’s no guarantee that investors won’t start retreating to the safe haven assets.
Today’s key event is the Bank of England’s interest rate decision and Mark Carney’s subsequent speech. The market is expecting a 25 base point hike to bring the key rate to 0.75%. Volatility is expected to be high, despite the fact that the market has already factored in this rise. No one knows what Carney will say, so keep an eye on the dynamics of the EURGBP pair.
US10Y bond yields are at 3%. There’s a chance they could rise to 3.02%. If they don’t go any higher, we’ll get a downwards correction to 2.98%, which will be good for the single currency. I’m all for an upwards correction today.