EUR/USD: price caught at 1.0867 level

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Trading on the Euro closed down on Wednesday. Our currency pair traded at 1.0869 for 7 hours before falling to 1.0853 on the back of a sharp rise in US 10Y bond yields. As bond yields started to fall in Asia, the price returned to 1.0871 level.

Head of the ECB, Mario Draghi, wasn’t able to unhook the Euro from its price level of 1.0869. Draghi said in his statement that the bank is in no hurry to raise interest rates or to reverse its assets purchase program. The struggle with inflation goes on.

Market expectations:

On Wednesday, sellers allowed buyers to return to the trend line (1.0898), which was broken through on the 9^th of May. The Euro subsequently renewed its weekly minimum as the dollar rose across the board.

At the time of writing, the Euro is trading at 1.0872 USD. The single currency appreciated in Asia after its slide to 1.0853. This morning’s trading is following the same dynamics as yesterday’s. That’s not to say that today’s price movements will coincide completely with those on the 10^th of May.

It’s clear to see that the Euro is reluctantly retreating. I believe that sellers will update the minimum, from which they will cash in on short positions. I’ve chosen a modest target of 1.0844, although in the moment, the price could slip as far as 1.0822 (50% of the gap that appeared after the first round of the French presidential election on the 24^th of April).

In addition, the Bank of England will hold a meeting today. This is expected to produce some high volatility on the EUR/GBP cross. Depending on the direction of the cross and on US bond yields, traders will open their positions accordingly.

Day’s news (GMT+3):

• 08:00 Japan: Eco Watchers Survey (Apr);
• 09:00 Germany: wholesale price index (Apr);
• 10:15 Switzerland: CPI (Apr);
• 11:00 Eurozone: ECB economic bulletin;
• 11:30 UK: manufacturing production (Mar), trade balance (Mar), industrial production (Mar);
• 13:25 USA: Fed’s William Dudley speech;
• 14:00 UK: BoE quarterly inflation report, BoE interest rate decision, BoE asset purchase facility;
• 15:00 UK: NIESR GDP estimate (Apr);
• 15:30 Canada: new housing price index (Mar). USA: PPI (Apr), initial jobless claims (May 5), continuing jobless claims (Apr 28);
• 17:30 Canada: BoC review.

EURUSD rate on the hourly. Source: TradingView.

Intraday forecast: low: 1.0844, high: 1.0881, close: 1.0863.

Trading on the Euro closed down on Wednesday by an insignificant amount. US 10Y bond yields, which surged to 2.417%, put pressure on buyers. Now bond yields are declining (2.397%) and so the Euro has restored to 1.0872.

Some bullish divergences have formed on the CCI and AO hourly indicators. These are signals of an imminent correction. Given that no major buyers entered the market yesterday, I’m expecting the Euro/dollar pair to update its minimum to 1.0844. Clearly, buyers are waiting for more attractive prices in order to profit from the correction. The 157^th degree runs through 1.0838 level.

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 7:01 EET is 53%/47%, lots: 13961/12380 (previous day: 10452/9000), positions: 40730/35879 (previous day: 35485/25987);

(+) German 10Y bond yields: 0.431% (up 1.17% from 10/05/17);

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

(+) EURGBP (D): AO – 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 Tuesday, the 9^th of May, according to CME Group’s FedWatch, the probability of a rate hike in June remains 83.1%. The probability in July has risen from 84.4% to 84.7% and in September from 91.2% to 91.8%;

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: 2.401% (up 0.5% from 10/05/17);

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

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

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