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EUR/USD: bearish divergences have formed on the AO and CCI indicators

Gabriel Ojimadu

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The euro/dollar closed up on Thursday. Before trading closed in Europe, the rate was trading within a 40 point range of 1.0706 to 1.0746. In the first half of the day, the euro's growth was constrained by the dynamics of the EUR/GBP cross, which started falling after the minutes from the Bank of England's meeting were published. Just as trading in Europe closed, the EUR/GBP rate closed the gap on the GBP/USD as the EUR/GBP cross grew.

Market expectations:

After reaching the 1.0774 level, the currency pair entered a correctional phase. In Asia, the pair is currently trading within a narrow range. Despite the fact that the buyers' share of the market is 80%, my forecast for today is looking south. The euro won't strengthen without a rebound from the balance line. Yesterday, my target wasn't reached. Perhaps today, before the weekend, we could see the rate reach the 45th degree.

Day's news (GMT+3):

  • 13:00 Eurozone: trade balance (Jan);
  • 14:00 Eurozone: construction output (Jan);
  • 15:00 UK: BoE quarterly bulletin;
  • 15:30 Canada: manufacturing shipments (Jan);
  • 16:15 USA: industrial production (Feb), capacity utilization (Feb);
  • 17:00 USA: Michigan Consumer Sentiment Index (Mar), CB leading indicator (Feb);
  • 17:00 Belgium: CCI (Mar);
  • 20:00 USA: Baker Hughes US oil rig count.

EURUSD rate on the hourly. Source: TradingView

Intraday forecast: low: 1.0724, high: 1.0774 (current in Asia, possible growth to 1.0790), close: 1.0720.

Buyers twice tried and failed to break through the level at 1.0694. A sharp reversal on the cross after trading closed in Europe brought about a strengthening of the single currency to 1.0774. This growth slowed at around the 157th degree.

Cyclical and graphical analyses indicate that the euro will weaken today. At the moment, I can't see any technical factors that would provide support to buyers around the MA line U3. I've written above that before any growth can happen, we need to see a correction towards the balance line. In the case of strong movement, it's better if the rate doesn't go higher than the U2 line because the stronger the growth, the sharper the subsequent rebound will be.

I'm not ruling out the formation of an ending diagonal triangle. Only in this case will the rate quickly return to 1.0706. The maximum on it should be around 1.0785/90. For Friday, I'm expecting some correctional movement to the 45th degree at 1.0724. Levels at 1.0748 (22 degrees) and 1.0739 (channel from 1.0746) will act as supports. In making my predictions, there was one thing that gave me cause for concern. According to myfxbook, short positions currently have 80% of the market share. The faster the rate reaches the level at 1.0748, the likelier my target will be reached. Some bearish divergences have formed on the AO and CCI (20) indicators.

Positives for the euro (+):

Fundamental:

(+) 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 will come 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;

Technical (short-term):

(+) Long/short ratio according to myfxbook as of 7:11 EET: 80%/19%, lots: 28751/6966 (previous day: 24304/11716), positions: 72135/23227 (previous day: 62780/33193);

(+) German 10-year bond yields: 0.447% (up 7.9% from 16/03/17);

(+) EURGBP (W):  the CCI (20), AO, AC and the Stochastic (5,3,3) are moving upwards. the trend line has been broken through;

(+) EURUSD (M): the Stochastic (5,3,3) is moving upwards;

(+) EURUSD (W): The Stochastic (5,3,3), AO, AC, and CCI (20) are moving upwards;

(+) EURUSD (D): the AO, AC and Stochastic (5,3,3) indicators are moving upwards;

Negatives for the euro (-):

Fundamental:

(-) According to CME Group's FedWatch Tool, as of Thursday the 16th of March, the probability of a rate hike in May has fallen from 93.5% to 6.4%. The probability in June has gone up from 49.6% to 54.0%, and in July from 58.3% to 62%;

(-) Political uncertainty in Europe (French elections and Brexit);

Technical factors (short-term):

(-) According to data from 07/03/17, large speculators on the Chicago Exchange have increased their long and decreased their short positions. Long positions have fallen by 5,404 to 137,358 contracts, while short positions have grown by 8,820 to 196,124 contracts. Net short positions have grown from 44,542 to 58,766 contracts.

(-) US 10-year bond yields: 2.542% (up 1.68% from 16/03/17). In Asia, US 10Y bond yields have grown by 0.44% to 2.535%;

(-) EURUSD (M): the AO and AC indicators are moving downwards;

(-) EURUSD (D): the CCI (20) is moving downwards;

(-) EURGBP (D): the AO, AC, CCI (20), and Stochastic (5,3,3) indicators are moving downwards;

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 immunity from prosecution lifted for political reasons.

Attention:

Forecasts which are made in the review constitute the personal view of the author. Commentaries made do not constitute trade recommendations or guidance for working on financial markets. Alpari bears no responsibility whatsoever for any possible losses (or other forms of damage), whether direct or indirect, which may occur in case of using material published in the review.

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