EURUSD: lower liquidity due to US holidays

On Wednesday the 22^nd of November, trading on the euro/dollar closed up by 81 pips at 1.18. This sharp increase was brought about by the decline in the dollar and US 10Y bond yields resulting from the publication of weak durable goods data and the FOMC minutes.

Durable goods orders fell after three months of growth. US 10Y bond yields dropped from 2.376% to 2.340%.

A lot of FOMC members support gradually increasing interest rates over the coming months so long as macroeconomic indicators stay in line with mid-term projections. On the other hand, some members are inclined to refrain from tightening monetary policy any further until they are sure that the recent growth in inflation is sustainable.

Day’s news (GMT+3):

• 10:00 Germany: GDP (Q3).
• 11:00 France: Markit manufacturing PMI (Nov), Markit services PMI (Nov).
• 11:30 Germany: Markit manufacturing PMI (Nov), Markit services PMI (Nov).
• 11:35 Eurozone: ECB’s Praet speech.
• 12:00 Eurozone: Markit manufacturing PMI (Nov), Markit services PMI (Nov).
• 12:30 UK: GDP (Q3).
• 14:00 UK: CBI distributive trades survey (Nov).
• 16:30 Eurozone: ECB monetary policy meeting accounts.
• 16:30 Canada: retail sales (Sep).
• 19:30 Switzerland: SNB chairman Jordan’s speech.
• 21:15 Eurozone: ECB’s Cœuré Speech.

Fig 1. EURUSD rate on the hourly. Source: TradingView

Political uncertainty in Germany didn’t cause the euro to drop as I expected. The US dollar’s decline together with disappointing US data stopped sellers from making any inroads. Prospects of a decline for the euro were dashed when the price exited the A-A channel. From the 45^th degree, the price initially recovered to the 67^th degree, making it to the 90^th degree after the FOMC minutes were published.

There was also another factor at play against the dollar. Traders needed some kind of driver to help them determine which currency would be better to hold over the long weekend. The data that came has created a negative outlook for the dollar and the FOMC minutes have strengthened this outlook.

As today is the 4^th Thursday in November, the US is celebrating Thanksgiving Day. American exchanges are closed today and will close early on Friday. Volumes are thin on the market, so from our current price of 1.1829, we could move up to 50 pips in either direction. Considering that traders are buying euros on the crosses and that markets are paying less attention to the German coalition talks, I’m predicting a test of the 112^th degree followed by a rebound towards the lower boundary of the B-B channel. When the crosses are rising, buyers don’t give up so easily.

If markets do decide to pay attention to Germany, I’d like to see the price return to the LB balance line, which currently runs through 1.1763.