EUR/USD: Macron has won, buyers cashing in

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Trading on the Euro on Friday closed up. Before the US jobs report was released (Non-Farm Payrolls, NFP), the rate corrected to 1.0954. Following the release, the Euro renewed its daily minimum against the dollar, but this bearish impulse was quickly extinguished. Traders bought Euros in anticipation of a Macron victory in the second round of France’s presidential election, giving the NFPs secondary importance. By the end of the day, the Euro had risen to 1.0999.

The US created 211,000 new jobs outside the agricultural sector in April against a forecast of 190,000 and a previous reading of 79,000. The figure for February was upgraded from 219,000 to 232,000 and downgraded for March from 98,000 to 79,000. The aggregate revision amounts to -6,000.

Unemployment fell to 4.4% (forecast: 4.6%, previous reading: 4.5%). Average hourly earnings grew by 0.3% MoM in line with expectations against a previous reading of 0.1% (revised downwards from 0.2%). The participation rate came to 62.9%, down from 63.0% the previous month.

Market expectations:

Trading on the Euro has opened up this morning (Monday) in the wake of Emanuel Macron’s victory, who is now President-elect of France. In the second round, the leader of “En Marche!” won 66.06% of the vote, with National Front leader Marine Le Pen on 33.94%.

Having updated the maximum, traders have started cashing in on their long positions. Buy on expectations, sell on facts. The EUR/USD has since fallen from 1.1021 to 1.0957. Monday against Friday has already worked out given that buyers are now approaching Friday’s minimum.

I’m predicting a testing of 1.0950 level, followed by an upwards correction towards 1.0995. From the trend, I’m expecting the market in any case to present buyers with  a good opportunity for cashing in long positions.

A slide for the Euro below 1.0935 will end the bullish trend given that since 1.0940 level was broken through on Thursday the 4^th of May, we can’t return to a consolidation zone where the price was previously trading for 7 days. This is a bad sign, indicative of a change in sentiment.

Day’s news (GMT+3):

• 09:00 Germany: factory orders (Mar);
• 11:30 Eurozone: Sentix investor confidence (May);
• 15:15 Canada: housing starts (Apr);
• 15:35 USA: Fed’s Bullard speech;
• 15:45 USA: Fed’s Mester speech;
• 17:00 USA: Labor Market Conditions Index (Apr).

EURUSD rate on the hourly. Source: TradingView.

Intraday forecast: low: 1.0950, high: 1.1021 (current in Asia), close: 1.0980.

Traders ignored the NFP report on Friday. They’ll be able to focus on it more now that the presidential election in France has come to an end. Macron has won and France is staying in the EU.

From  a high of 1.1021, the Euro has slid to 1.0957. The 45^th degree has been broken through and the 67^th runs through 1.0942. The balance line is supporting buyers at 1.0957. If buyers aren’t able to hold strong at 1.0940, this will trigger a mass closing of long positions.

So, I’m predicting a testing of 1.0950 level, followed by a restoration to 1.0995. We could possibly see the formation of a head and shoulders model.

Positives for the Euro (+):

Fundamental:

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

Technical (short-term):

(+) According to data from 02/05/17,  large speculators on the Chicago exchange have reduced short positions and slightly increased long positions. Long positions have gone up by 1,987 to 155,381 contracts and short positions have been reduced by 19,029 to 162,311 contracts. Net-short positions have fallen from 21,016 to 6,930 contracts;

(+) According to myfxbook, the Short/Long ratio as of 6:55 EET is 75%/24%, lots: 8421/2664 (previous day: 17760/3760), positions: 25387/8828 (previous day: 48580/14020);

(+) German 10Y bond yields: 0.424% (up 10.99% from 05/05/17);

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

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

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

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

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

Negatives for the Euro (-):

Fundamental:

(-) ECB head: revision of ECB’s monetary policy not required at present;

(-) On Friday, the 5^th of May, according to CME Group’s FedWatch, the probability of a rate hike in June has risen from 78.5% to 83.1%, in July from 80% to 84.4% and in September from 87.6% to 91.2%;

Technical (short-term):

(-) Small speculators have reduced their short positions by 3,768 to 62,985 contracts. Short positions have fallen by 2,147 to 63,604 contracts. Last week, the number of open short positions surpassed that of long positions. Net-short positions currently stand at 619 contracts;

(-) US 10Y bond yields: 2.350% (up 1.20% from 05/05/17);

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

(-) EURGBP (D): CCI (20) – down;

(-) EURUSD (D): AC – 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 is France’s president-elect;

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