EUR/USD: Euro down in the Asian session

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The Euro/dollar rate has closed up for the 4^th day in a row. Speculation over the possibility of Donald Trump getting impeached helped the single currency strengthen to 1.1172. Escalating political tensions in the US have induced a slide in bond yields as well as a mass retreat towards safe haven assets. Investors are currently buying gold, Japanese yen and US bonds.

Gold has appreciated by 25 USD to 1,261 USD per Troy ounce. The USD/JPY exchange rate has fallen by 229 pips to 110.78. US 10Y bond yields have fallen by 2.69% to 2.236%. The probability of interest rates going up in June has fallen to 64.6%.

First, it was revealed that Trump had shared some top-secret information with Russian foreign minister Sergey Lavrov about the Islamic State terrorist organisation. Then, he allegedly asked the former FBI chief James Comey to halt the investigation into former national security advisor Michael Flynn’s relations. On Wednesday, Al Green, a congressman from Texas, called for Trump’s immediate impeachment. He believes that Trump has obstructed the investigation into the presidential campaign and Russian influence on the 2016 election.

Because of these troubles, investors fear that the Trump administration will have some difficulties trying to implement its tax and healthcare reforms.

No president has ever been successfully impeached in the history of the USA. In any case, the Republican party won’t allow it to happen this time around given that they control both houses of Congress. The Euro’s rally won’t last much longer given that there is no fundamental driving force behind it.

Market expectations:

The economic calendar is sparse today. There are no important statistics for currency markets to be released. News outlets will continue to control the market with their horror stories. In the Asian session, the Euro has slid from a high of 1.1172 to 1.1143. It looks like profit taking, but it’s too early to draw conclusions. Yesterday had a similar situation when the Euro dropped from 1.1093 by 38 pips. If we take that value from 1.1172, we get 1.1134. In order to get buyers to close their long positions, sellers need to push the price below 1.1125.

I think that traders will start buying Euros again as the price falls to 1.1093. Should the rate fall further than 1.1085, the downwards correction will gain momentum. As I’ve written above, the Euro rally doesn’t have any significant news behind it, meaning that the rate could fall just as quickly as it rose. Amidst the political turmoil in the US, making a forecast is rather senseless. The sentiment on the currency market could change at any moment.

Day’s news (GMT+3):

• 11:30 UK: retail sales (Apr);
• 15:30 Canada: foreign portfolio investment in Canadian securities (Feb); USA: initial jobless claims (12 May), Philadelphia Fed manufacturing survey (May);
• 20:00 Eurozone: ECB president Mario Draghi’s speech.

EURUSD rate on the hourly. Source: TradingView

Intraday forecast: low: n/a, high: n/a, close: n/a.

The bullish trend on our currency pair started with the release of Friday’s statistics. A technical breakout of 1.10 level allowed buyers to up the price to the 1.1117 mark, including today’s trading.

The scandals surrounding Trump have taken centre stage, making the Fed’s meeting in June a secondary priority. Those close to Trump have been talking about him to the newspapers. Investors fear that the White House will now have some difficulties carrying out its proposed tax and healthcare reforms.

Until the situation with Trump deescalates, I don’t see any point in making predictions. Technical indicators don’t work in cases like these. The Euro has formed a trend on the hourly timeframe. Given that the Euro rally isn’t supported by any fundamental factors, there’s a high risk of a deep correction. I think that people will start buying Euros as the price falls to 1.1093. The downwards correction will get stronger if the price falls further than 1.1085. If it starts to grow again, I’m setting a target of 1.12. After this, the road to 1.1330/50 will be open.

Positives for the Euro (+):

Fundamental:

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

(+) Escalating political tensions in the US. Texas congressman Al Green has called on his colleagues to impeach President Trump;

Technical (short-term):

(+) According to data from 09/05/17,  large speculators on the Chicago exchange have reduced short and long positions. Short positions have been reduced more than long ones by a factor of 12. Long positions have fallen by 2,899 to 152,481 contracts, while short positions have fallen by 34,758 to 127,553 contracts. The closing of short positions has resulted in an increased number of long positions. Net-long positions are now at 24,928 contracts;

(+) Small speculators have increased their long positions by 7,335 to 70,321 contracts. Short positions have fallen by 3,924 to 59,663 contracts. Long positions have again increased. Net-long positions currently stand at 10,658 contracts;

(+) According to myfxbook, the Short/Long ratio as of 7:27 EET is 91%/8%, lots: 37974/5310 (previous day: 39088/3646), positions: 77913/15579 (previous day: 73096/12846);

(+) US 10Y bond yields: 2.236% (down 2.69% from 17/05/17);

(+) EURGBP (W): AC, CCI (20), Stochastic (5,3,3) – up;

(+) EURGBP (D): AO, AC, CCI (20), Stochastic (5,3,3) – up;

(+) EURUSD (M): AO, AC, CCI (20), Stochastic (5,3,3) – up;

(+) EURUSD (W): AO, AC, Stochastic (5,3,3) – up;

(+) EURUSD (D): AO, AC, CCI (20), Stochastic (5,3,3) – up;

Negatives for the Euro (-):

Fundamental:

(-) ECB head: revision of ECB’s monetary policy not required at present. On the 10^th of May, he added that the bank is in no hurry to raise interest rates or to halt its asset purchasing program;

(-) On Wednesday, the 17^th of May, according to CME Group’s FedWatch, the probability of a rate hike in June has fallen from 69.2% to 64.6%, in July from 76.4% to 61.2% and in September from 82.9% to 80.9%;

Technical (short-term):

(-) German 10Y bond yields: 0.367% (down 14.45% from 17/05/17);

(-) EURGBP (M): AC, AO, CCI (20), Stochastic (5,3,3) – down;

(-) EURGBP (W): AO – down;

(-) EURUSD (W): CCI (20) – down;

Built into the price:

(-) Tension surrounding the situation with North Korea. Increased demand for safe haven assets;

(-) The US Congress has approved a temporary budget, avoiding a government shutdown for the time being. A week’s delay will give time for knocking out a draft budget for the rest of the fiscal year (end of September). It became clear on the 1^st of May that Republicans and Democrats had settled on a compromise to keep the budget going until the 30^th of September;

(+) Emmanuel Macron has been sworn in as the new president of France;

(+) S&P has reaffirmed Germany’s credit rating at AAA/A-1+ with a stable outlook.