EUR/USD: no drivers for a bullish impulse

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Trading on the Euro on Monday ended up slightly in the red as Europeans celebrated International Workers’ Day. Activity was very low during the first half of the day. In the US session, the Euro jumped to 1.0924. It rose along with US bond yields, which shouldn’t have happened. This movement in one direction was brought about by the EUR/GBP cross, which closed up at the end of the day. Trading ended on the EUR/USD instrument at 1.0896. The price stayed within Friday’s range of 1.0857 to 1.0947.

The rise in US bond yields did act as a support for the US dollar despite the statistics released in the US did not meet market expectations. It’s worth noting that these weak statistics increased the probability of the Fed raising interest rates in May, June and July.

Here, traders are betting on the dollar due to upcoming growth in US GDP for the year on the back of tax reforms. Mnuchin, US finance minister, said that tax cuts would help stimulate growth of the economy in the short term.

US statistics:

The construction spending index for the US for March came to -0.2% (forecast: 0.4%, previous reading: 1.8%).

The ISM manufacturing index for April was 54.8 (forecast: 56.5, previous reading: 57.2).

The personal income index in the US fell to 0.2% (forecast: 0.3%, previous reading revised from 0.4% to 0.3%). The personal spending index fell to 0.0% (forecast: 0.2%, previous reading: 0.1%).

Market expectations:

Traders will be focusing their attention this week on three important events: a decision from the FOMC (3 May), US jobs report (5 May) and the French presidential election (7 May). Markets will be closed on the 7^th of May, so we’ll see the reaction to the election on the 8^th.

The Euro is currently trading at 1.0914. The instrument has been caught in a sideways trend for the last few days and its range is narrowing. Taking into account the upcoming events, some are of the opinion that buyers won’t be able to push the price above 1.0950 on Tuesday. I’m inclined to say that they won’t even make it to this level. As quotes on the EUR/GBP pair rise, I’m expecting the 1.0945 level to be tested, followed by a ricochet to around 1.0898.

Day’s news (GMT+3):

• 10:30 Switzerland: SVME purchasing managers index (Apr);
• 10:55 Germany: Markit manufacturing PMI (Apr);
• 11:00 Eurozone: Markit manufacturing PMI (Apr);
• 11:30 UK: Markit manufacturing PMI (Apr);
• 12:00 Eurozone: unemployment rate (Mar);
• 22:30 USA: total vehicle sales (Apr).

EURUSD rate on the hourly. Source: TradingView

Intraday forecast: low: 1.0897/90, high: 1.0945, close: 1.0915.

My predictions for Monday came off for the most part. Due to the public holiday, Monday’s range turned out even smaller than Friday’s. 70% of the day’s trading volume occurred within a range from 1.0896 to 1.0914. The largest volume was traded at 1.0906 against 1.0897 the day before.

The hourly Stochastic indicator is in the buy zone. In theory, sellers are ready for an assault and a testing of the 1.0875 level. Considering yesterday’s divergence between the EUR/USD and GBP/USD, there is a suspicion that buyers will be able to push the Euro up against the dollar to 1.0940/45 before it falls again. A sharp rebound would indicate that a major player has entered the market, whose intentions will then be followed closely until the end of the day.

If buyer activity is low when the price is around the minimum, we can expect the Euro to slide as far as 1.0824. The technical picture on the daily timeframe also casts doubt on price growth. As per my forecast, I’m expecting a testing of 1.0945 level followed by a ricochet to around 1.0898.

Positives for the Euro (+):

Fundamental:

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

(+) French elections: Emmanuel Macron won the first round of voting by a small margin;

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

Technical (short-term):

(+) Small speculators have increased long positions by 4,253 to 66,753 contracts and short positions by 493 to 61,457 contracts. net-long positions have grown from 3,759 to 5,296 contracts;

(+) According to myfxbook, the Short/Long ratio as of 6:52 EET is 73%/26%, lots: 10820/3968 (previous day: 9912/3929), positions: 34302/14152 (previous day: 29755/12793);

(+) In Asia, US 10Y bond yields have fallen by 0.23% to 2.323%;

(+) EURGBP (D): AO, AC – up;

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

(+) EURUSD (W): AO, AC, 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 Monday, the 1^st of May, according to CME Group’s FedWatch, the probability of a rate hike in May has risen from 4.3% to 4.8%, in June from 70.6% to 70.7% and in July from 73.5% to 74.4%;

(-) 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;

Technical (short-term):

(-) According to data from  25/04/17, Large speculators on the Chicago Exchange have reduced their long and short positions. There are currently more short positions than longs. Long positions have fallen by 32,054 to 153,394 contracts, while short positions have fallen by 25,030 to 181,340 contracts. Net-short positions have increased from 7,023 to 27,946 contracts;

(-) German 10Y bond yields: 0.321% (up 7.0% from 28/04/17);

(-) US 10Y bond yields: 2.318% (up 1.26% from 01/05/17);

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

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

(-) EURGBP (D): Stochastic (5,3,3), AC – down;

(-) EURUSD (D): AO, AC, Stochastic (5,3,3), CCI (20) – down.