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EUR/USD: correction expected after renewed maximum

Gabriel Ojimadu

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Trading on the euro on Thursday closed in the green. The EUR/USD rate corrected to 1.0679 on the back on a fall in US bond yields. The US statistics released were kind to the dollar, but not enough to reverse the correction. After an unsuccessful attempt to rise above 2.4868% on the back of this news, US 10-year bond yields fell to 2.4386% (-1.94%).

A rise in bond yields increases the chances of a rate hike by the Fed, and, conversely, a fall is likely to lead to rates being slashed. According to the CME Group FedWatch Tool, the likelihood of a rate hike in March has fallen from 31% to 17%. It was this downgrading that saw bond yields fall on Thursday. Investors are unsure whether or not the rate hike in March will happen. The probability of a rate hike in June, however, has increased from 45.4% to 46.4%.

US statistics:

  • The number of US jobless claims in the week ending 11/02 amounted to 239,000 (forecasted: 245,000, previous figure: 234,000).
  • New housing starts in January came to 1.246m (forecasted: 1.227m, previous figure: 1.279m).
  • The number of building permits issued in the US in January was 1.285m (forecasted: 1.230m, previous figure: 1.210m).
  • The Philadelphia Fed manufacturing survey saw the index rise to 43.3, up from the previous value of 23.6.

Market expectations:

The EUR/USD rate has found an equilibrium point at 1.0675 despite the balance line on the hourly timeframe running through the 1.0616 mark. Given that from a technical standpoint, US 10-year bond yields are expected to fall further, I'm expecting the euro to jump to around 1.0689 when trading opens in Europe. If the EUR/GBP cross rises, this could further increase to 1.0701. Once a new high has been reached, in the second half of the day, cyclical analysis points to a weakening of the euro. The scale of this correction will again depend on the dynamics of US bonds.

Day's news (GMT+3):

  • 12:00 Eurozone: current account (Dec);
  • 12:30 UK: retail sales (Jan);
  • 16:30 Canada: foreign portfolio investment in Canadian securities (Dec);
  • 18:00 USA: CB leading indicator (Jan);
  • 21:00 USA: Baker Hughes US oil rig count.

EURUSD rate on the hourly. Source: TradingView

Intraday forecast: low: 1.0653, high: 1.0690 (1.0701 if the EUR/GBP cross rises), close; 1.0665.

My predictions for the euro on Thursday came off in terms of growth. The euro received strong support from a fall in US bond yields as well as from growth on the EUR/GBP cross.

The euro's strengthening against the dollar slowed down around the 135th degree at 1.0675. From there, after a rise in bond yields, the rate rebounded, but subsequently restored by the end of the session.

Trading on the pair has now been showing a bullish trend for several hours under the 1.0675 mark. The thing is that the euro has corrected by 76.4% from 1.0714 to 1.0521 and by 50.0% from 1.0829 to 1.0521. When several levels coincide from various methods of analysis, the strength of the support level increases. I'm forecasting a rise to 1.0690 followed by a fall to 1.0653. The euro could fall immediately given that the Stochastic indicator is reversing downwards. However, this is a relatively weak signal.

On the chart I've drawn two 45 degree marks. The first was calculated from a maximum of 1.0679, and the second from 1.0690. If the cross falls on the back of a rising dollar, you should look at the targets below the 45th degree. Don't forget to keep an eye on US 10-year bonds, since a fall in yields will prevent the euro from weakening.

20 February, 09:41 (GMT+3)
EUR/USD: Monday against Friday

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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