EUR/USD: rebound from the trend line
Trading on the single currency closed up on Monday. Towards the end of the session, the Euro depreciated by 45 pips to 1.0861. The gap stayed closed, but after the correctional movement from 1.0906, a long shadow appeared on the candlestick.
Remember that the dollar's slide was brought about by the new US administration's failure to secure enough votes for their healthcare reform bill. Traders sold their Euros in a move that signals new doubt over the new president's ability to deliver on the reforms he promised.
So far in Asia, the exchange rate has renewed its session minimum of 1.0855. At the time of writing, the price has just rebounded from the trend line. The hourly indicators have unloaded, so I'm expecting the single currency to appreciate to 1.0895 in the first half of the day. I don't see Monday's maximum being renewed.
Day's news (GMT+3):
- 14:45 EU: ECB member Cœuré's speech;
- 15:30 USA: wholesale inventories (Feb);
- 16:00 USA: S&P/Case-Shiller home prices indices (Jan);
- 17:00 USA: consumer confidence (Mar), Richmond Fed manufacturing index (Feb);
- 17:10 Canada: BoC governor Poloz's speech;
- 19:50 USA: Fed's Yellen speech;
- 20:00 USA: FOMC member Kaplan's speech;
- 23:30 USA: FOMC member Powell's speech.
Intraday forecast: low: 1.0855 (current in Asia), high: 1.0895, close: 1.0874.
On Monday, the EUR/USD rate reached 1.0906 level. A correction began during the American session from around the 112-135 degree range. The downwards correction amounted to 45 pips. At this moment in time, there are grounds for a new rise in quotes.
Given that the hourly indicators have offloaded, my forecast is looking north. The target for buyers is 1.0895. I can't see the price going any higher than that as the four-hour indicators haven't unloaded. If we take a look at the weekly period, the rate has rebounded from the trend line, which takes its starting point from the top at 1.3994 (08/05/14). I don't think that it'll be broken through today.
There's one other thing I must warn you about. Cyclical analysis points towards a strengthening Euro from 12:15 EET. Before this, we should see a minimum form. I ignored this in my forecast given that the price is perched on the trend line. If it gets broken through and the hourly candlestick closes below 1.0850, the potential for growth for the Euro disappears.
In our current situation, we must consider the possibility of a false breakthrough because the 38.2 Fibonacci level runs through 1.0850, projected from growth from 1.0760 to 1.0906. It's also located below the trend line. So, if buyers can induce a rebound from the line, then a phase of depreciation should set in after 17:30 EET. The quicker quotes rise, the likelier yesterday's maximum of 1.0906 will be reached.
Positives for the euro (+):
(+) US president Donald Trump favours a weaker dollar;
(+) The threshold for acceptable US government debt of 20.1 trillion USD may be reached by March this year. This will create headaches for new US president Donald Trump. A new law on the debt ceiling came into force on the 16th of March 2017;
(+) The Greek government has made some progress in its talks with international creditors on the second stage of their reform program;
(+) Head of the ECB, Mario Draghi, has hinted that the central bank may not need to provide any further stimulus to revitalise Europe's economy. From April to December 2017, the ECB will reduce their monthly assets purchases to 80 to 60 billion EUR;
(+) ECB bosses have discussed the possibility of raising interest rates before the QE program comes to an end;
(+) Ewald Nowotny, a member of the ECB's governing council, has said that the bank could raise the deposit rate before the main refinancing rate;
(+) On the 24th of March, Donald Trump withdrew his proposed healthcare bill to replace Obamacare from the US Congress' agenda;
(+) ECB member Lautenschläger warns that it's time to prepare for a change in the bank's policy;
(+) According to data from 21/03/17, large speculators on the Chicago Exchange have significantly increased their long and decreased their short positions. Long positions have grown by 10,138 to 158,646 contracts, while short positions have fallen by 10,325 to 176,891 contracts. Net short positions have fallen from 38,707 to 18,245 contracts. Small speculators have increased their long positions by 3,811 to 65,280 contracts and short positions by 4,779 to 63,093 contracts. Net long positions have fallen from 3,158 to 2,178 contracts.
(+) Short/long ratio according to myfxbook as of 07:38 EET: 84%/15%, lots: 34751/6549 (previous day: 10206/2033), positions: 69240/22454 (previous day: 27422/7518);
(+) US 10-year bond yields: 2.380% (down 1.57% from 27/03/17);
(+) EURGBP (W): the CCI (20), AO and AC are up;
(+) EURGBP (D): the AO and Stochastic (5,3,3) indicators are up. Bullish engulfing pattern;
(+) EURUSD (M): the Stochastic (5,3,3) is up;
(+) EURUSD (W): The Stochastic (5,3,3), AO, AC, and CCI (20) are up;
(+) EURUSD (D): the AO and Stochastic (5,3,3) indicators are up. The CCI (20) is trying to reverse upwards;
Negatives for the euro (-):
(-) According to CME Group's FedWatch Tool on Monday the 27th of March, the probability of a rate hike in May has fallen from 6.4% to 4.3%, in June from 54% to 48.5% and in July from 60.8% to 56.1%;
(-) Political risks in Europe (French elections and Brexit);
(-) Fed member Evans is expecting 2-3 rate hikes in 2017. The Federal Reserve will make a decision about the next hike in June;
(-) President of the Philadelphia Fed, Harker, announced that the Federal Reserve will continue to gradually increase interest rates throughout 2017;
Technical factors (short-term):
(-) German 10-year bond yields: 0.402% (down 1.23% from 27/03/17);
(-) In Asia, US 10Y bond yields have grown by 0.06% to 2.376%;
(-) EURGBP (W): The Stochastic (5,3,3) is down;
(-) EURGBP (D): the AO and CCI (20) indicators are down;
(-) EURUSD (M): the AO and AC indicators are down;
(-) EURUSD (D): the AC indicator is down;
Built into the price:
(-) The Ex-Prime Minister of France, Alain Juppe, has ruled himself out of participating in the presidential election;
(+) François Bayrou, leader of the "Democratic Movement" party, has ruled out running for the presidency and thrown his weight behind independent candidate Emmanuel Macron;
(+) Marine Le Pen has had her EU parliamentary.