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EUR/USD: correction expected after renewed maximum


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.


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