EUR/USD: pair has entered a correctional phase

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Trading on the Euro closed down on Thursday, with a breakout of the trend line ending the 4-day rally. The pair fell to 1.1076 but sellers weren’t able to close the day below 1.1082 (the opening price of the candlestick on the 17^th of May).

Donald Trump is once again under siege, as he has been since entering the White House. Every week, its walls are shaken by a new scandal. Since the dismissal of FBI director James Comey, Trump has been threatened with impeachment and even prison. Political tensions slightly subsided when the former FBI head appeared to deny that Trump had tried to halt the investigation into his former advisor’s ties with Russian officials.

Market expectations:

In Asia, the Euro is trading at 1.112. Friday’s economic calendar is relatively empty but there are some planned speeches from members of the ECB and the US Federal Reserve. Euro-bears have consolidated under the balance line, so I’m going to take a risk and say that the correctional movement will continue to 1.1060.

Day’s news (GMT+3):

• 09:00 Germany: PPI (Apr);
• 11:00 Eurozone: current account (Mar);
• 12:00 Eurozone: ECB member Prat’s speech;
• 13:00 UK: CBI industrial trends survey – orders (May);
• 15:00 Eurozone: ECB member Constâncio’s speech;
• 15:30 Canada: CPI (Apr), retail sales (Mar), CPI core (Apr);
• 16:15 USA: FOMC member Bullard’s speech;
• 17:00 Eurozone: consumer confidence (May);
• 20:00 USA: Baker Hughes US oil rig count.

EURUSD rate on the hourly. Source: TradingView

Intraday forecast: low: 1.1060, high: 1.1126/30, close: 1.1070.

On Thursday, the Euro/dollar pair closed down. Sellers didn’t manage to close the day below 1.1082 and so missed out on forming a bearish engulfing pattern. The dust has finally settled after a 4-day rally. The trend line and balance line have both been broken through. The price fell as a result of a high volume of orders, indicating a mass closing of long positions that had been opened by traders from the 12^th of May. In the second half of the day, gold and yen both depreciated, while US bond yields grew.

At the time of writing this review, the Euro is trading at 1.1111. The price has slipped below the 67^thdegree. Given that this is below the trend line, I expect the correction to continue to the 90^th degree (1.1060). On the hourly timeframe, the price is at the balance point (lb), but in the next few days, it should find a balance point on the more senior timeframes.

The 38% Fibo level from the growth from 1.0839 to 1.1172 is at 1.1044 and 50% at 1.1006. The 112^thdegree runs through 1.1040. So, it’s reasonable to suppose that the price may return to the 1.1040/45 range. This is my base scenario for Friday.

Positives for the Euro (+):

Fundamental:

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

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 82%/18%, lots: 28678/6296 (previous day: 37974/5310), positions: 64703/19491 (previous day: 77913/15579);

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

(+) EURGBP (D): AO, AC – 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 Thursday, the 17^th of May, according to CME Group’s FedWatch, the probability of a rate hike in June has risen from 69.2% to 73.8%, in July from 61.2% to 75.8% and in September from 80.9% to 82.4%;

Technical (short-term):

(-) German 10Y bond yields: 0.350% (down 7.40% from 18/05/17);

(-) US 10Y bond yields: 2.333% (up 4.94% from 18/05/17);

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

(-) EURGBP (W): AO – down;

(-) EURGBP (D): CCI (20), Stochastic (5,3,3) – 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.