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EURUSD: euro is close to upper boundary of channel

Previous:

On Thursday the 20th of September, trading on the EURUSD pair closed up. The euro bulls broke through the resistance at 1.1725 on the back of a reduced appetite for risk. The single currency recovered to 1.1785 by the end of the US session.

Pressure on the greenback increased after the release of GDP data from New Zealand (strengthening NZD), increasing further in the European session after the release of strong British retail sales data (strengthening GBP).

The dollar lost ground across the board despite a rise in US10Y bond yields and favourable statistics on jobless claims and the Philadelphia manufacturing index. This is too much, so today the market should iron out these creases. Bond yields rose to their highest level in 4 months (3.099%).

Day’s news (GMT 3):

  • 10:15 France: Markit manufacturing PMI (Sep), Markit services PMI (Sep).
  • 10:30 Germany: Markit manufacturing PMI (Sep), Markit services PMI (Sep).
  • 11:00 Eurozone: Markit manufacturing PMI (Sep), Markit services PMI (Sep).
  • 11:30 UK: public sector net borrowing (Aug).
  • 14:00 UK: BoE quarterly bulletin.
  • 15:30 Canada: CPI (Aug), retail sales (Jul).
  • 16:45 US: Markit manufacturing PMI (Sep), Markit services PMI (Sep).
  • 20:00 US: Baker Hughes US oil rig count.

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Fig 1. EURUSD hourly chart.

Current situation:

The resistance at 1.1725 didn’t hold up. My weekly forecast didn’t account for a breakout. Protective stop levels were triggered above this level, including mine, as well as Buy Stop orders. Bulls encountered resistance at the 112th degree at 1.1785.

The euro is currently trading at 1.1776. Since the euro crosses are trading up in Asia, we can expect the EURUSD pair to make it up to 1.18 during the European session. Hourly cycles point towards a decline, so nothing has changed here in terms of the weekly forecast.

The Federal Reserve will hold a meeting next week, where a 0.25% rate hike is expected. This hike has already been factored in by the market, so trader attention will not be focused on the rate hike itself, but on the possibility of another in December.

Market participants are also keeping an eye on the second day of the EU summit in Salzburg, where the Brexit deal is being discussed. The pound jumped on expectations of progress being made in the negotiations. If we start to see some negative news on this front, the GBPUSD pair will reverse downwards, followed by other pairs. I’m expecting our main pair to rise to 1.18, followed by a drop to 1.1746. If we see some aggressive fixing and a rebound from the upper line of the channel at 1.1888, the pair could return to the lower line at 1.1688.


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