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EURUSD: a return to 1.1309 is highly likely

Previous:

On Wednesday the 31st of October, trading on the euro closed down by 0.28%. Pressure on the euro continues to stem from the uncertainty around the situation in Italy, as well as the general strengthening of the US dollar after the publication of positive data on the number of new jobs in the US private sector and the growth in 10-year US bond yields. The indicator exceeded market expectations.

Data from Automatic Data Processing (ADP) showed that the growth rate of employment in the US private sector accelerated in October. In October, the number of those employed increased by 227 thousand, compared to 218 thousand in September (it was revised from 230 thousand). The market expected that the number of those employed will grow by 189 thousand.

Day's news (GMT 3):

  • 11:15 Switzerland: CPI (Oct).
  • 12:30 UK: Markit manufacturing PMI (Oct).
  • 15:00 UK: BoE interest rate decision, BoE asset purchase facility.
  • 15:30 UK: BOE's Governor Carney speech.
  • 15:30 US: nonfarm productivity, unit labor costs (Q3), initial jobless claims (Oct26).
  • 16:45 US: Markit manufacturing PMI (Oct).
  • 17:00 US: ISM manufacturing PMI (Oct).
  • 17:00 US: construction spending (Sep).

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Fig 1. EURUSD hourly chart

Current situation:

Our expectations for yesterday were fully justified; an increase to 1.1360, followed by a decrease to 1.1302. In Asia, the dollar has fallen in value against all currencies. The market driver for today was the New Zealander, which was then followed by the Australian dollar and the pound.

There were rumours across the market that the RBNZ would not lower rates, but rather take a pause. In the second quarter of 2018, New Zealand's economy grew by 1.10% QoQ, which was the fastest pace in two years. After the publication of this data, there was talk that the Central Bank could once again lower rates.

The Briton is growing on statements from the UK's main Brexit negotiator Dominic Raab. He expects an agreement on Brexit on the 21st of November. Because of this, the euro/pound cross pair slipped.

The key event for the pound will be the BOE meeting. A rate increase isn't expected, so special attention will be paid to the results of the voting and Mark Carney's press conference. Events in the UK will affect the euro/dollar cross via the euro/pound cross pair.

According to the forecast, I am waiting for a drop to 1.1309, but there is the risk that we will not pass through 1.1330. There was a breakout of the trend line. Buyers have rested on the upper border of the B-B channel. Since the stochastic is on top, I'll wait for it to fall at the start of the European session. We'll have a better idea then. Keep in mind that it is more difficult to turn the market around whilst the situation in Italy is still ongoing. Sellers drive the price for a couple of hours to 1.1309, and even reach new all-time lows. Selling euros is safer than buying and in order to buy, we should first pass 1.1360.

 


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