On Wednesday the 27th of March, trading on the euro closed down. In the space of 5 trading days, the euro has shed 1.48% against the dollar, which is mostly the result of developments relating to Brexit weighing down on the euro via the EURGBP cross, as well as a retreat towards safe havens bolstering the dollar.
It’s worth pointing out that the dollar is rising amid declining US10Y bond yields, because market participants are focusing on the discrepancy between 10-year and 2-year bond yields. At the moment, however, US10Y bond yields are higher (2.35%) than US02Y (2.18%) and US03Y (2.19%).
Mario Draghi added fuel to the fire yesterday with his hint that any potential interest rate hike could be delayed if deemed necessary.
Day’s news (GMT 3):
- 12:00 Eurozone: M3 money supply (Feb), private loans (Feb).
- 12:10 Eurozone: ECB’s De Guindos speech.
- 13:00 Eurozone: consumer confidence (Mar), economic sentiment indicator (Mar), industrial confidence (Mar), business climate (Mar).
- 15:30 US: GDP (Q4), initial jobless claims (22 Mar).
- 16:00 Germany: harmonised index of consumer prices (Mar).
- 17:00 US: pending home sales (Feb).
- 20:15 US: Fed’s Williams speech.
Market volatility remains high due to Brexit, as well as the retreat from risky assets. Our pair closed down on Wednesday and the euro is currently trading at 1.1256
The hourly chart shows that a strong support has formed at the 67th degree. The pair is currently trading 14 pips away from it. In terms of Gann levels, the conditions for entering the market have been fulfilled. However, there are 2 factors that are bothering me. Firstly, the pair is rising despite a lack of trading volume. Secondly, the stochastic oscillator has moved into the sell zone. This makes me think that there are some hidden stop levels on long positions just below 1.1240. If this is the case, the big players need to trigger these to activate their limit orders. If the stop levels are triggered, this could lead to an increased volume of short positions on the euro, which will then prompt the bulls to enter the market.
With a surge in trading volume, a recovery to 1.1295 within the channel is possible. I expect to see a bounce from the lower boundary of the channel at 1.1236. If the bulls aren’t tempted by this then after a small bounce and a dip on the stochastic below 50, we could see a breakout to the downside of the trend line at 1.1265. Keep an eye on today’s headlines.