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EURUSD: rebound from the trend line likely

Previous:

On Tuesday the 11th of December, trading on the EURUSD pair closed down. The single currency’s slide against the greenback was facilitated by a broadly stronger dollar, a statement from Italian Finance Minister Giovanni Tria, and a drop in German 10-year bond yields ahead of the ECB meeting.

The exchange rate dropped to 1.1306. German bond yields fell due to a selloff of Italian and French bonds. Giovanni Tria announced that the government isn’t planning any major changes to its budget. French President Emmanuel Macron tried to quell the protests in Paris with wage increases and tax cuts. The GBPUSD pair dropped amid uncertainty surrounding Brexit.

Day’s news (GMT 3):

  • 13:00 Eurozone: industrial production (Oct).
  • 16:30 Canada: capacity utilisation (Q3).
  • 16:30 US: CPI (Nov).
  • 18:30 US: EIA crude oil stocks change (7 Dec).
  • 22:00 US: monthly budget statement (Nov).

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Fig 1. MA channel on the EURUSD hourly chart.

Current situation:

On the back of a rise in European stocks, euro bulls managed to test the 1.14 mark around the 45th degree. From there, the rate plummeted 94 pips. I’ve listed the reasons for this drop above. The pair has exited the upwards channel (dashed line), and is currently trading beneath it.

In my forecast, I expect to see the pair recover to the LB balance line and the 45th degree. Since there’s a slight divergence between the indicators on the H1 and H4 timeframes, I’m expecting an initial drop to 1.1317 followed by a rise to 1.1356. As I’ve mentioned above, there’s a multitude of levels here from various methods of technical analysis. I can’t see the pair rising any further than 1.1380.

External factors for the euro remain negative. Taking into account that the ECB is holding a meeting on Thursday, it would be nice to see a pullback to 1.1360. Trading around the balance line would suit both the bulls and the bears. If 1.1300 doesn’t hold up, we’ll get a drop to 1.1248 (D3).


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