EURUSD: price pulls back 61.8% before bouncing off the A-A channel
On Thursday the 16th of November, trading on the euro/dollar pair closed down. The rate twice approached the zone of 1.1757 – 1.1759, but failed to break through. News from the US didn’t do sellers any good either. The US House of Representatives yesterday passed a tax reform bill proposed by the Trump administration.
Markets were slow to react to the news given that the Senate has put forward an alternative proposal, which involves deferring tax cuts for another year. As such, it’s unclear as of yet what the final legislation will look like.
From the 1.1770 mark, the euro should have continued its decline until 1.1710, but the political news held it up. More on this later.
Day’s news (GMT+3):
- 11:30 Eurozone: ECB president Draghi’s speech.
- 12:00 Eurozone: current account (Sep), construction output (Sep).
- 16:00 Germany: German Buba president Weidmann’s speech.
- 16:30 Canada: CPI (Oct).
- 16:30 USA: building permits (Oct), housing starts (Oct).
- 20:00 USA: Baker Hughes US oil rig count.
The euro closed down against the dollar on Thursday, although sellers didn’t make it to their target of 1.1751. If the euro weren’t rallying today, I’d have predicted that it would decline to form a pin bar model reaching down to 1.1710. The euro, however, has jumped to 1.1822, leaving us without a pin bar.
The dollar declined across the board after an article published in the Wall Street Journal. Special Counsel Robert Mueller has issued a subpoena to more than a dozen officials from Donald Trump’s presidential campaign, requesting documents related to Russia.
Safe haven assets (yen, gold, franc) were given a boost after an article published by Reuters, which reported that satellite images suggest that North Korea is working on its first submarine with ballistic missiles.
Suffice to say that politics is having an influence on trading. It’s unclear how Europe will react when their session gets underway. In theory, the euro should continue to grow to 1.1866, although cycles and patterns seem to suggest a decline. Here, I think it’s a personal decision as to whether you should sell or buy euros.
Personally, I’m leaning towards selling. Aside from the cycles, the upwards correction came to 61.8% of the drop from 1.1860 to 1.1757. The price has rebounded from the upper boundary of the A-A channel. I created the channel by connecting subsequent lows.
I want to stress again that the market is starting to be influenced by political factors. Technical analysis is of secondary importance now. Anything that doesn’t work out on the technical side as expected may come to fruition later. If the price breaks up out of the A-A channel, we can forget about a decline.