07 Feb

EURUSD: correction expected, followed by a further drop

February 7, 2019

By Matthew Anthony, Alpari

Previous:

On Wednesday the 6th of February, trading on the euro closed down. The euro’s decline was brought about by a broadly stronger dollar across the global Forex market, along with a jump in US10Y bond yields. Bond yields didn’t close the day up, but the growth that did occur led to the opening of long positions on the dollar. During the European session, the euro corrected to 1.1399, before dropping to 1.1361 during trading in the US.

Day’s news (GMT+3):

  • 10:00 Germany: industrial production (Dec).
  • 10:45 France: trade balance (Dec).
  • 11:00 Switzerland: foreign currency reserves (Dec).
  • 11:30 UK: Halifax house prices (Jan).
  • 12:00 Eurozone: economic bulletin.
  • 15:00 UK: BoE interest rate decision, BoE asset purchase facility, BoE quarterly inflation report.
  • 16:30 US: initial jobless claims (1 Feb).
  • 23:00 US: consumer credit change (Dec).

EURUSD hourly chart

Current situation:

Yesterday’s market expectations were met in full. The euro initially dropped to the 90th degree, then, after a slight rebound, descended along the hourly trend line to the lower boundary of the A-A channel.

In today’s Asian session, the bears are closing in on the 112th degree. Shorting the euro around this level is very risky. If you do, I advise reducing the risk on the trade because the chances of a correction here are relatively high. I think it better to sell after the rebound. In my forecast, I’m predicting a correction to 1.1375/77, followed by a drop to close the day at 1.1340.

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My forecast shows a reversal occurring overnight on the 8th of February. As such, we should see a reversal model forming somewhere between the 112th and 135th degrees (the 135th degree is at 1.1328).

Let’s not forget about China! US Finance Minister Steve Mnuchin has announced that he will travel to Bejing along with a delegation for another round of trade talks. If an agreement is not reached, a new set of tariffs may be imposed on Chinese goods on the 2nd of March. Mnuchin remarked that talks have so far been very productive. This brings hope that a deal will be reached, which will provide some bullish impetus for risky assets.

Source: EURUSD: correction expected, followed by a further drop

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