EURUSD: buyers closing their long positions

August 30, 2017

By Gabriel Ojimadu, Alpari

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Geopolitical tensions in the Korean Peninsula have generated increased interest in safe haven assets among European investors; most notably the Swiss franc, Japanese yen, and gold. During yesterday’s European session, the euro/dollar pair reached the 1.2070 mark, its highest level since January 2015.

The safe haven rally was halted in the US session. By the end of the day, exchange rates had returned to their opening levels in the Asian session. Pressure on investors subsided as US president Donald Trump gave a more measured response to North Korea’s provocation, without resorting to threats. Trump is currently more focused on rebuilding the areas devastated by Hurricane Harvey.

The US proposed a statement to the other members of the UN Security Council condemning North Korea’s missile test on Tuesday. The statement, approved by the UN, calls on North Korea to halt its nuclear program and to refrain from any future missile tests or other such provocations. The statement contains no threats of further sanctions relating to this matter.

The situation on the Korean Peninsula remains tense, but the rhetoric from the US seems to have calmed investors, who have started abandoning the safe havens. The greenback received an additional boost from a strong US consumer confidence index, which hit a new 5-month high.

US 10Y bond yields fell to 2.08% before correcting to 2.14% by the end of the day. The euro/dollar pair fell by 123 pips to 1.1943. Now we’ll take a look at what kind of impact the missile launch and investor activity have had on the hourly chart.


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Day’s news (GMT+3):

  • 09:00 Switzerland: UBS consumption indicator (Jul).
  • 10:00 Switzerland: KOF leading indicator (Aug).
  • 11:30 UK: net lending to individuals (Jul), M4 money supply (Jul), mortgage approvals (Jul).
  • 15:00 Germany:  preliminary CPI (Aug).
  • 15:15 USA: ADP employment change (Aug).
  • 15:30 Canada: current account (Q2).
  • 15:30 USA: GDP annualised (Q2), GDP price index (Q2).
  • 16:15 USA: FOMC member Powell’s speech.
  • 17:30 USA: EIA crude oil stocks change (25 Aug).

EURUSD rate on the hourly. Source: TradingView

The price broke through the U3 line before correcting to the LB balance line. I was expecting the euro to drop like this after reaching 1.20 through three tops. I’m not sure what caused European investors to turn tail and run towards safe haven assets. Asia’s reaction to the North Korean missile launch was much calmer.

North Korea’s supreme leader noted that this missile launch was the first step towards military action in the Pacific Ocean and was an important prelude to an attack on the US territory of Guam. This raises the question of why investors are already abandoning safe havens when the threats from North Korea persist. What’s their reasoning for this?

So, we should bear the Korean situation in mind as we keep an eye on the dynamics of safe haven assets. A candlestick with a long wick has formed on the daily timeframe. If sellers reach their target, the euro should fall to 1.1850 (D3 MA line). 1.1850 is the level to keep your sights on, but we can also take 1.1930 and 1.1890 as intermediate targets. The euro/pound cross is breaking through the trend line, so keep an eye on this pair. If the drop gathers pace, the euro should also fall against the dollar. In this case, sellers won’t even take notice of the 112th degree.

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