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EUR/USD: cycles indicate a weakening euro


On Tuesday the euro/dollar closed down. Travelling as always in the same direction, the euro/dollar and pound/dollar currency pairs showed a mixed dynamic. During the European session, the euro fell to 1.0725. From there, the euro began a new phase of growth, rising up to 1.0775 on the back of a sharp rise in the Canadian dollar against its American counterpart.

Traders have been buying Canadian dollars on the news that US president, Donald Trump has approved the Dakota Access and Keystone XL pipelines by way of executive order; projects that had been sidelined by his predecessor, Barack Obama.

The US dollar/Canadian dollar rate dropped 193 points to 1.3106. The euro slid from a high of 1.0775 to around 1.0720 due to the fall in the euro/pound cross, and the increase in US bond yields. The pound/dollar rate rose from a low of 1.2418 up to 1.2543.

Market expectations:

Currency traders are keeping an eye on Trump's executive actions rather than looking at the statistics. The first 100 days of the Republican's presidency will be very important and telling for the US dollar. As such, technical analysis may fail as news comes in from the White House.

So for Wednesday, I'm getting a bearish picture of the euro. As of now the pair is in a correctional phase. The correction is occurring within a narrow range under the balance line and above the 45th degree. Before market close in Europe, the euro is expected to slide to 1.0670/75. The euro could return to 1.0775, but, as it stands, a double top is forming on the hourly timeframe. I don't envisage the euro strengthening.

Day's news (GMT +3):

  • 10:00, Switzerland - December consumer spending indicator from UBS;
  • 12:00, Germany - Ifo business climate index for January;
  • 14:00, UK - CBI index for the expected volume of orders in the industry for January;
  • 17:00, USA - housing price index for purchases through Fannie Mae and Freddie Mac for November;
  • 18:30, USA - change in oil reserves from 16-22 January;
  • 19:00, UK - Bank of England head, Mark Carney, to speak.

Technical Analysis:

EUR/USD rate on the hourly. Source: TradingView

Intraday forecast: minimum - 1.0673, maximum - 1.0741, close - 1.0695.

Yesterday's expectations of a correction, and subsequent growth rang true. It's unfortunate that when there was an update of the maximum, the price reversed downwards without reaching the calculated target of 1.0785. Pressure on the single currency came from a rise in American bond yields and a fall in the euro/pound cross.

The euro exchange rate slid by 45 degrees to the trend line. In theory, today I should be considering a bounce from the trend line in accordance with my forecast. I've paid attention to the increase in euro purchases. The eurobulls have been confident the euro will strengthen. Accordingly, the market will need to find a new equilibrium level. Using cyclical analysis and looking at the patterns, I'm expecting a weakening of the euro against the dollar to 1.0671. From market opening, Europe may make a go for 1.0740/45, and from there I expect a fall in the rate to around the 90th degree.


10:11 GMT+3

Everything is pointing to a weakening of the euro at the moment:

  • American bond yields are on the rise;
  • The economic calendar in Europe is bare;
  • The euro has broken through the trend line and the 1.0720 minimum.

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