EUR/USD: upward trend continues

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The euro/dollar pair closed up on Tuesday. The single currency found some support from Le Pen’s lacklustre performance in the French presidential debate as well as from the British pound, which strengthened after the release of inflation figures in the UK.

During the European session, the EUR/USD pair shot past the daily resistance at 1.0790 on its way to 1.0819. From there, the pair entered a correctional phase.

Market expectations:

In Asia, the price has corrected to 1.0789. During this correctional phase, the hourly indicators offloaded. The resistance at 1.0789 became a support. A rebound from this level would be a bullish signal.

At the time of writing, the euro is trading at 1.0802. The economic calendar for Wednesday is relatively empty. Buyers currently have a market share of 85%, which is why today I’m expecting the euro to strengthen against the dollar to 1.0849. This growth may stop at 1.0835 (projection from the tops).

Day’s news (GMT+3):

• 12:00 Eurozone: current account (Jan);
• 16:00 USA: housing price index from Fannie Mae and Freddie Mac (Jan);
• 17:00 Switzerland: SNB quarterly bulletin;
• 17:00 USA: existing home sales (Feb);
• 17:30 USA: EIA crude oil stocks change (Mar 17);
• 22:45 Canada: Lawrence Schembri, deputy governor of the Bank of Canada, to speak;
• 23:00 Canada: RBNZ interest rate decision.

EURUSD rate on the hourly. Source: TradingView.

Intraday forecast: low: 1.0789 (current in Asia), high: 1.0849, close: 1.0812.

Euro-bulls broke the resistance at 1.0790 on Tuesday. After a rebound from 1.0789, this turned into a support level for buyers. The reversal zone is located at the 112^th degree. Cyclical analysis and patterns suggest that the euro will weaken over the next couple of days. Given that short positions on the euro make up 85% of the market, and that the Stochastic indicator is in the buy zone, I’m going to take a risk and say that the euro will strengthen against the dollar to 1.0849.

This year’s maximum of 1.0829 was reached in January. If buyers renew this maximum today, it will pave the way for weekly trend line to go up to 1.1021. The potential for growth will disappear if the hourly candlestick closes below 1.0782.

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.

(+) Short/long ratio according to myfxbook as of 07:28 EET: 85%/14%, lots: 39575/6876 (previous day: 21726/7542), positions: 90115/21436 (previous day: 54996/21436);

(+) US 10-year bond yields: 2.464% (down 2.11% from 21/03/17). In Asia, bond yields have fallen by 0.68% to 2.417%;

(+) German 10-year bond yields: 0.459% (up 4.31% from 21/03/17);

(+) 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 indicator is moving upwards;

Negatives for the euro (-):

Fundamental:

(-) According to CME Group’s FedWatch Tool on Tuesday  the 21^st of March, the probability of a rate hike in May remains at 6.4%. The probability in June has fallen from 58.3% to 54% and in July from 64.5% to 60.8%;

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

(-) Fed member Evans is expecting 2-3 rate hikes in 2017. The Federal Reserve will make a decision about the next hike in June;

(-) President of the Philadelphia Fed, Harker, announced that the Federal Reserve will continue to gradually increase interest rates throughout 2017;

Technical factors (short-term):

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

(-) EURUSD (D): the Stochastic (5,3,3) 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.