EUR/USD: Monday v Friday

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On Friday the 17^th of March, trading on the euro closed down. The EUR/USD rate fell to the 1.0727 level, after which the currency pair went into a correctional phase. Before trading closed, the price consolidated under the 1.0727 – 1.0748 range.

US statistics weren’t enough to bring the price out of this range. The industrial manufacturing index came out flat. At the same time, the leading indicators index and the University of Michigan’s consumer sentiment index exceeded expectations.

US statistics:

• The index of leading indicators in the US for February came to 0.6% (forecast: 0.4%, previous figure: 0.6%).
• The final reading of the University of Michigan’s Consumer Sentiment Index has come in at 97.6 (forecast: 97.0, preliminary figure: 95.7).
• The US industrial manufacturing index for February has come in at 0.0% (forecast: +0.2%, previous figure revised from -0.3% to -0.1%).

Market expectations:

During trading in Asia, the rate restored by 30 points to 1.0764. Today is Monday, correction day. I’m not paying attention to the news in my forecast, in which I’m expecting the single currency to strengthen against the US dollar to 1.0789.

Given that the Stochastic oscillator is currently in the sell zone for the euro, I think there is no prospect of the rate growing to 1.0805.

Day’s news (GMT+3):

• 10:00 Germany: PPI (Feb);
• 14:00 Germany: Bundesbank monthly report;
• 15:30 Canada: wholesale sales (Jan);
• 17:30 Australia: CB leading indicator (Jan);
• 19:45 Germany: Bundesbank president Wiedmann’s speech;
• 20:10 USA: Fed’s Evans speech;
• 21:20 UK: MPC member Haldane’s speech.

EURUSD rate on the hourly. Source: TradingView

Intraday forecast: low: 1.0732 (current in Asia), high: 1.0790, close: 1.0778.

On Friday, the euro/dollar corrected from the 157^th degree to 45 degrees. Through consolidation, the price met with the balance line towards the end of trading. The euro began to strengthen as markets opened and restored to 1.0765.

Given that the euro rate closed down on Friday, I’m expecting the euro to strengthen today, against Friday’s movement. According to my calculations, the euro should correct from 1.0772 (10:00) to 1.0754 (14:00). From there, I’m expecting a new session impulse to 1.0790 (20:00). After trading closes in Europe, we should see a rebound to 1.0778.

On the older timeframes for the EUR/GBP and EUR/USD pairs, we have a mixed picture. Because of this, I’m expecting some turbulence at our current level (possible sharp fluctuations in both directions). Before considering long positions, we first need to look at the EUR/GBP cross. At the moment, on the hourly timeframe, the Stochastic oscillator is forming a bearish signal. Taking out long positions on the euro with a falling cross is risky given that this could create some unwanted drawdown.

Positives for the euro (+):

Fundamental:

(+) US president Donald Trump favours a weaker dollar;

(+) The threshold for acceptable US government debt of 20.1 trillion USD may be reached by March this year. This will create headaches for new US president Donald Trump. A new law on the debt ceiling came into force on the 16^th of March 2017;

(+) The Greek government has made some progress in its talks with international creditors on the second stage of their reform program;

(+) Head of the ECB, Mario Draghi, has hinted that the central bank may not need to provide any further stimulus to revitalise Europe’s economy. From April to December 2017, the ECB will reduce their monthly assets purchases to 80 to 60 billion EUR;

(+) ECB bosses have discussed the possibility of raising interest rates before the QE program comes to an end;

(+) Ewald Nowotny, a member of the ECB’s governing council, has said that the bank could raise the deposit rate before the main refinancing rate;

Technical (short-term):

(+) According to data from 14/03/17, small and large speculators on the Chicago Exchange have increased their long and short positions. Long positions have grown by 11,151 to 148,509 contracts, while short positions have grown by 8,909 to 187,216 contracts. Net short positions have fallen from 58,766 to 38,707 contracts. Small speculators have reduced their short positions by 11,095 to 58,313 contracts. Net long positions have risen by 3,158 contracts.

(+) Long/short ratio according to myfxbook as of 7:01 EET: 74%/25%, lots: 21726/7542 (previous day: 28751/6966), positions: 54996/21436 (previous day: 72135/23227);

(+) US 10-year bond yields: 2.501% (down 1.61% from 17/03/17);

(+) EURGBP (W):  the CCI (20), AO, AC and the Stochastic (5,3,3) are moving upwards. The trend line has been broken through;

(+) EURUSD (M): the Stochastic (5,3,3) is moving upwards;

(+) EURUSD (W): The Stochastic (5,3,3), AO, AC, and CCI (20) are moving upwards;

(+) EURUSD (D): the AO and Stochastic (5,3,3) indicators are moving upwards;

Negatives for the euro (-):

Fundamental:

(-) According to CME Group’s FedWatch Tool on Friday the 17^th of March, the probability of a rate hike in May remains 6.4%. The probability in June has gone up from 54.0% to 58.3%, and in July from 62.0% to 64.5%;

(-) Political uncertainty in Europe (French elections and Brexit);

Technical factors (short-term):

(-) German 10-year bond yields: 0.436% (down 2.89% from 17/03/17);

(-) EURUSD (M): the AO and AC indicators are moving downwards;

(-) EURUSD (D): the AC and CCI (20) are moving downwards;

(-) EURGBP (D): the AO, AC, CCI (20), and Stochastic (5,3,3) indicators are moving downwards;

Built into the price:

(-)  The Ex-Prime Minister of France, Alain Juppe, has ruled himself out of participating in the presidential election;

(+) François Bayrou, leader of the “Democratic Movement” party, has ruled out running for the presidency and thrown his weight behind independent candidate Emmanuel Macron;

(+) Marine Le Pen has had her EU parliamentary immunity from prosecution lifted for political reasons.