EUR/USD: euro expected to strengthen in form of flag pattern

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On Wednesday, trading on the euro closed down. Buyers were unable to hold above 1.0800. First they retreated to the support of 1.0788, and then before the announcement of the Federal Reserve’s decision, slid further to 1.0736.

The weakening dollar held its own after the FOMC meeting. As a result of the meeting, the decision was taken to keep interest rates in the 0.5-0.75% range. The press release showed no indication of when to expect the next hike in rates. After the meeting, the euro recovered from 1.0730 to 1.0789.

Market expectations:

For today (Thursday), the Bank of England’s meeting will be the centre of focus. The main EUR/USD pair will likely be swayed by the EUR/GDP cross. Don’t expect any surprises; interest rates and the QE program will be kept to their current levels. What we can expect is a surge in volatility as Mark Carney gives his speech. Taking into account the data to be released today along with tomorrow’s report on the US labour market; I’m expecting to see a flag pattern with an upward bias in the EUR/USD pair.

Day’s news (GMT+3):

• 11:15 Switzerland: real retail sales (Dec);
• 12:00 Eurozone: economic bulletin from ECB;
• 12:30 UK: PMI construction (Jan);
• 13:00 Eurozone: Producer Price Index (Dec);
• 15:00 UK: BoE quarterly inflation report, BoE MPC vote, BoE interest rate decision;
• 15:15 Eurozone: ECB president Draghi’s speech;
• 15:30 UK: BoE governor Mark Carney’s speech;
• 16:30 USA: jobless claims (week ending Jan 27^th), nonfarm productivity (Q4), unit labour costs (Q4).

EURUSD rate on the hourly. Source: TradingView

Intraday forecast: low: 1.0762 (current rate in Asia), high: 1.0811, close: 1.0798.

On the back of trading in Europe and the US, the EUR/USD rate fell back to the balance line lb. The price managed to stabilise within the hourly timeframe prior to the Federal Reserve’s announcement of their decision. From a high of 1.0812, there was a pullback of 67 degrees. After the meeting, the rate jumped up by 45 degrees. In Asia, the rate rose to 1.0793.

For Thursday, it looks like a saw pattern is in the works. Given that the euro is strengthening in Asia, it may open down in the European session. There is a risk that before this slide, buyers will test the 1.0800 level. Since the Stochastic is already on top, the rebound from the resistance will be abrupt. For the rally to continue, buyers will need to hold at 1.0775 during the rebound.

Expect a surge in volatility on the currency market during BoE governor Mark Carney’s speech. Keep an eye on the dynamic of the EUR/GDP cross and US bond yields. US bond yields will fall today with the euro correspondingly rising against the US dollar.

I don’t expect the euro will rise above 1.0812 due to Friday’s payrolls. The ADP index turned out to be very positive, an so traders are expecting a strong report on the US labour market.