EURUSD: euro in demand over expectations of QE reversal

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On Wednesday the 6^th of June, trading on the euro closed up. Traders were active at the beginning of the European session. There was a surge in volatility during ECB chief economist Peter Praet’s speech. He confirmed that the ECB’s executive board will discuss when to end the bank’s bond-buying program. The exchange rate went up to 1.1796 on the back of this. The session’s bullish trend was helped along by the euro crosses.

ECB board member Weidmann also gave the euro bulls a boost. He noted that inflation in the Eurozone is slowly returning to the ECB’s target level and that market expectations that the QE program will end before 2018 is over are plausible.

Day’s news (GMT+3):

• 09:00 Germany: factory orders (Apr) – This is an important indicator for the euro, although the reaction to it could be mixed. If the report exceeds expectations, buyers will push the session high to its limit. If factory orders drop and come out lower than expected, growth will slow down.
• 09:45 France: trade balance (Apr) – This doesn’t tend to have an effect on the euro’s dynamics.
• 10:00 Switzerland: foreign currency reserves (May) – This doesn’t have an effect on currency markets.
• 10:30 UK: Halifax house prices (May) – The pound is sensitive to this report, although it could still ignore it. We need to look at the general sentiment towards the pound.
• 12:00 Eurozone: GDP (Q1) – This is uninteresting to speculators given that the second quarter is nearly at an end.
• 15:30 USA: initial jobless claims (1 Jun) – Not relevant after the payrolls report.
• 17:30 Canada: financial system review – Important for the Canadian dollar.
• 18:15 Canada: BoC governor Poloz speech – Has a strong influence on the Canadian dollar.

Fig 1. EURUSD hourly chart. Source: TradingView

On Wednesday, the comments of two ECB board members helped the bulls recover to 1.18. In Asia, the pair is trading in the reversal zone between the 112^th and 135^th degrees. The dollar’s decline across the board along with growth on the euro crosses is pushing the EURUSD pair upwards. The pair is currently trading at 1.1803.

A bearish divergence has appeared between the price and AO indicator. This is a sell signal, but we’ve seen that this doesn’t work in practice when session trends are brought about by geopolitics and speeches from central bank officials.

On the hourly timeframe, everything is pointing towards a downwards correction. I reckon that the rate is going to drop below 1.1790 again, after which the drop will intensify. The trend line runs through this level. We’re currently in a sell zone (112 – 135), so I think the rate will drop to around 1.1710/20. Sellers have 2 resistance levels to overcome on the way; 1.1775 and 1.1752 (LB balance line and 45^th degree).

There are some important events scheduled for today, which could impact the EURUSD pair via the euro crosses.