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Euro/Dollar: Fall of Euro to be Restrained Before FOMC Minutes

EURUSD 1H

Yesterday’s Trading:

Tuesday saw the euro/dollar fall to 1.0710. Pressure on the euro gathered strength after Eurozone inflation data came out. If we take into account that Saudi Arabia is increasing oil discounts for Europe, inflation will remain low for a long while. In this case, the ECB will have to take additional measures with regards to relaxing its monetary policy and this is to down the euro further.

Main news of the day (EET):

  • From 10:15 to 11:00, EU nations’ December service PMIs;
  • 11:30, UK December service sector business activity index;
  • 12:00, Eurozone manufacturing inflation data;
  • 16:45, US Markit service sector business activity index;
  • 17:00, US ISM service sector business activity index, industrial order data;
  • 17:30, US Ministry for Energy oil reserves;
  • 21:15 EET, FOMC minutes.

Market Expectations:

In Asia the euro/dollar renewed to 1.0772 (45 degrees) due to sales of Australian and New Zealand currencies. Their sale was provoked by negative Chinese statistics. The Caixin PMI in the service sector for December fell from 51.2 to 50.2. The Aussie AiG service sector activity index also fell significantly.

The euro was trading around 1.0747 at 6:22 EET this morning. Today I’ve gone for a fall in the price to 1.0700. This will take place if the euro/pound passes 0.7311.

There’s no point in putting complete trust in my forecast since it’s unclear how market participants are going to act before the FOMC minutes come out. My forecasted scenario takes into account their past behaviour and how the indicators are set up at this moment in time. If we go off the daily timeframe, then the rate’s free to head to 1.0518.

Technical Analysis:

  • Intraday target maximum: 1.0772 (current Asian), minimum: 1.0700, close: 1.0760;
  • Intraday volatility for last 10 weeks: 100 points (4 figures).

The euro on Tuesday fell to the lower limit of the channel. From a minimum of 1.0710 it restored by 45 degrees to 1.0772. I think that the 1.0772 level will remain the session maximum throughout Wednesday. There’s no bull divergence on the AO indicator, meaning there will be another minimum. How deep the euro/dollar will sink today will depend on the euro/pound movements. The cross has stopped at the support. If 0.7310 can’t hold, then due to the overall strengthening of the dollar, there are risks we could see a depart beneath 1.0700.

EURGBP 1H

My expectations on the cross worked out. I didn’t expect that we’d see a full scale strengthening of the dollar though. Due to this, the weakening of the euro against USD was stronger than that of the GBP against USD. At the moment the euro/pound is trading around 0.7329. I’m waiting for a break of yesterday’s minimum of 0.7311 and, together with it, a fall in the euro/dollar.

Daily

The euro bulls have strengthened beneath 1.0795. Now the road southwards to 1.0518 is open. There could be some short term jumps upwards.

Weekly

The 1.0794 support has been broken. Because of the direction of the stochastic, I expect a return for the euro back to 1.0518.

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