EURUSD: Euro-bulls reluctant to take profit
On Monday, the Euro closed up against the US dollar for the second session in a row. Since the 11th of May, the single currency has appreciated by 3.76% or 408 pips. It's been updating its highs for 7 days, just like the bitcoin.
The EUR/GBP cross is in unison with buyers, so sellers are struggling to break out of this upwards movement. Market participants are only paying attention to information that moves the rate in the direction of the trend and not against it.
The primary driver behind yesterday's rally was German chancellor Angela Merkel's comment that the Euro was too weak due to the ECB's soft monetary policy. There was nothing new about her comments, but traders decided to make a big deal of it. They began to speculate that Germany, through its ECB representatives, will insist on a tightening of their stance on monetary policy this year. The Bundesbank's monthly report also came into focus.
The EUR/GBP cross has grown amidst the panic surrounding Brexit talks. The UK could walk away from talks if the EU continues to insist on a divorce payment of 100bn EUR.
Partial profit-taking from investors as well as statements from FOMC members regarding interest rates put pressure on the cross. This pushed the Euro against the dollar down from 1.1263 to 1.1229.
In Asia, the Euro is trading at 1.1252. The closest resistance on the EUR/USD pair is 1.1330 and on the EUR/GBP at 0.8689. Should these levels be reached, it's worth expecting a downwards correction. If a major seller doesn't appear at this point, then the Euro could continue to the next resistance zone at 1.1480/1.1500 (line drawn through the maxima 1.1714 from 25/04/15 and 1.1616 from 03/05/16).
Day's news (GMT+3):
- 09:00 Switzerland: trade balance (Apr);
- 09:00 Germany: GDP (Q1);
- 10:30 Germany: Markit services PMI (May);
- 10:55 Germany: Markit manufacturing PMI (May);
- 11:00 Germany: IFO business climate;
- 11:00 Eurozone: Markit services PMI (May);
- 11:30 UK: public sector net borrowing (Apr);
- 13:00 UK: inflation report hearings, CBI distributive trades survey (May);
- 15:30 Canada: wholesale sales (Mar);
- 16:45 USA: Markit manufacturing PMI (May), Markit services PMI (May);
- 17:00 USA: new home sales (Apr), Richmond Fed manufacturing index (May).
Intraday forecast: low: n/a, high: n/a, close: n/a.
On Monday, the EUR/USD rate fell to an estimated level of 1.1161, but closed above 1.12. Merkel, along with the anxiety surrounding Brexit talks, have elevated the Euro to 1.1263.
I'm not making a forecast for today because the market is only taking in that which makes the Euro stronger. As such, I don't have any ideas for intraday trading. The closest resistance on the EUR/USD pair is at 1.1330 level. Unless the EUR crosses reach certain important levels, the EUR/USD will continue to climb against the trend. A trend with support from the crosses is dangerous for short positions. In order to start looking for sell signals, we need to consolidate below the trend line. The current hourly bar runs through 1.1193. If we see a double top form on the hourly timeframe of the Euro index, then there's a chance of seeing a subsequent downwards correction to 1.1207.
There's a lot of news due today. Which statistics traders should pay attention to is unclear. On Tuesday, 1.1290 level is acting as a resistance (line projected from 1.1172 and 1.1263) as well as 1.1310 (U3 line).
Positives for the Euro (+):
(+) US president Donald Trump favours a weaker dollar;
(+) According to data from 16/05/17, large speculators on the Chicago exchange have increased their long positions while reducing short ones. Long positions have increased by 10,500 to 162,981 contracts. Short positions have fallen by 3,863 to 123,690 contracts. Net-long positions have risen by 14,363 to 39,291 contracts;
(+) According to myfxbook, the Short/Long ratio as of 7:17 EET is 80%/19%, lots: 26572/6321 (previous day: 28082/5105), positions: 68525/17287 (previous day: 66326/15611);
(+) German 10Y bond yields: 0.397% (up 9.36% from 22/05/17);
(+) US 10Y bond yields: 2.232% (down 0.08% from 22/05/17);
(+) EURGBP (W): AO, AC, CCI (20), Stochastic (5,3,3) - up;
(+) EURGBP (D): AO, CCI (20), Stochastic (5,3,3) - up;
(+) EURUSD (M): AO, AC, CCI (20), Stochastic (5,3,3) - up;
(+) EURUSD (W): AO, AC, CCI (20), Stochastic (5,3,3) - up;
(+) EURUSD (D): AO, AC, Stochastic (5,3,3) - up;
Negatives for the Euro (-):
(-) ECB head: revision of ECB's monetary policy not required at present. On the 10th of May, he added that the bank is in no hurry to raise interest rates or to halt its asset purchasing program;
(-) Small speculators have increased their long positions by 2,245 to 72,566 contracts. Short positions have fallen by 3,353 to 63,016 contracts. Net-long positions have fallen by 1,108 to 9,550 contracts;
(-) On Monday, the 22nd of May, according to CME Group's FedWatch, the probability of a rate hike in June is still 78.5%. the probability in July has fallen from 80.0% 79.5% and in September has risen from 86.1% to 86.3%;
(-) EURGBP (M): AC, AO, CCI (20), Stochastic (5,3,3) - down;
(-) EURGBP (D): AC - down;
(-) EURUSD (D): CCI (20) - down;
Built into the price:
(-) Tension surrounding the situation with North Korea. Increased demand for safe haven assets;
(-) The US Congress has approved a temporary budget, avoiding a government shutdown for the time being. A week's delay will give time for knocking out a draft budget for the rest of the fiscal year (end of September). It became clear on the 1st of May that Republicans and Democrats had settled on a compromise to keep the budget going until the 30th of September;
(+) Emmanuel Macron has been sworn in as the new president of France;
(+) S&P has reaffirmed Germany's credit rating at AAA/A-1+ with a stable outlook.