EUR/USD: trend line on the hourly timeframe has been broken through

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The euro rate closed down on Thursday. Hawkish comments from Fed members and the growth of US 10-year bond yields continue to act as a support for the dollar. They're readying the market for a rate hike during the Fed's meeting this month, at least as traders see it.

According to the latest data from CME Group's FedWatch Tool, the probability of a rate hike in March has gone up from 66.4% to 75.3%, in May from 71.4% to 79%, and in June from 84.6% to 89.6%.

On Thursday, US 10-year bond yields grew by 1.14% to 2.486% (up 0.97% on 02/03/17). The EUR/USD exchange rate fell somewhat reluctantly as the growth in US bond yields was met with similar growth from their German counterparts. Buyers tried several times to induce some upwards movement from 1.0500, and only on the third attempt did they manage to break through the trend line.

Market expectations:

At the time of writing, the euro is selling at 1.0517. The rate bounced from 1.0495, but for this rebound to gather momentum, we must see the hourly candle close above 1.0530. If US 10-year bond yields rise above 2.50%, then perhaps we can expect the euro to fall to 1.0469 or lower. This will depend on the tone of the comments to be given today by Fed members Charles Evans, Jeffery Lacker, Stanley Fischer, Jerome Powell and Janet Yellen.

If US bonds stay under 2.50%, then the dollar will most likely undergo a correction and the euro will strengthen to 1.0540 towards the end of the day.

Day's news (GMT+3):

  • 10:00 Germany: retail sales (Jan);
  • 11:55 Germany: Markit services PMI (Feb);
  • 12:00 Eurozone: Markit services PMI (Feb);
  • 12:30 UK: Markit services PMI (Feb);
  • 13:00 Eurozone: retail sales (Jan);
  • 17:45 USA: Markit services PMI (Feb);
  • 18:00 USA: ISM non-manufacturing PMI (Feb);
  • 18:15 USA: Fed's Evans speech, Fed's Lacker speech;
  • 20:15 USA: FOMC member Powell's speech;
  • 21:00: Fed's Fischer speech, Fed's Yellen speech.

EURUSD rate on the hourly. Source: TradingView

Intraday forecast: low: 1.0498 (current in Asia), high: 1.0540, close: 1.0530.

My expectations of an upwards correction on Wednesday didn't come to fruition. Just as yesterday, the situation remains unclear. Cycles and price patterns from recent years are suggestive of a flat with an upwards bias. After unsuccessfully attempting to break through the trend line at 1.0545, the euro fell to 1.0495. In Asia, the euro is trading at 1.0519. The price bounced off the 67th degree and broke through the trend line on the hourly timeframe. As I've stated above, the situation is unclear to me and so my predictions should be taken with a pinch of salt.

Yesterday, the probability of a rate hike this month rose from 66.4% to 75.3%. Janet Yellen, among other Fed members, is due to speak today, but they're unlikely to have any surprises in store.

The 67th degree coincides with the minimum from 22/02/17. If US 10-year bond yields stay below 2.50%, then the dollar will likely undergo a correction and the euro will appreciate to 1.0540 by the end of the day. This scenario will only play out, though, if the hour closes above 1.0458. Keep an eye on US and German bonds, as these will be the main drivers for our currency pair in the wake of the Fed's meeting.

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;

(+) Greece may need less money than the IMF had planned for;

(+) 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;

Technical (short-term):

(+) According to data for 21/02/17, small time speculators on the Chicago Exchange have increased their long positions by 1,687 contracts and reduced short positions by 2,888 contracts;

(+) EURGBP: On the daily timeframe, the cross is in a phase of growth. The target is 0.86, from which the euro is expected to weaken;

(+) EURUSD: On the daily timeframe, between the Stochastic indicator and CCI, some bullish divergences have formed. The rate has rebounded from the minimum on 22/02/17;

(+) EURUSD: The monthly Stochastic indicator (5,3,3) is moving upwards;

(+) German 10-year bond yields: 0.317% (up 12.41% for 03/03/17). In Asia, US 10-year bond yields fell by 0.37% to 2.480%;

Negatives for the euro (-):

Fundamental:

(-) The ECB has no plans to curtail its QE program. According to the minutes of the latest meeting, most members of the Governing Council don't believe it necessary to reduce the amount of stimulus (long-term impact);

(-) According to CME Group FedWatch Tool, the probability of a rate hike in March has grown from 66.4% to 75.3%, in May from 71.4% to 79.0%, and in June from 84.6% to 89.6%;

(-) Head of the Philadelphia Fed, Patrick Harker, believes that a rate hike in March is possible;

(-) Dallas Fed president says it's better to raise rates sooner rather than later;

(-) John Williams, head of the San Francisco Fed, says that FOMC members will give serious consideration to a rate hike this month;

(-) Political risks in Europe are growing (French elections and Brexit);

(-) Greece is unable to reach a deal with its creditors for financial assistance;

Technical factors (short-term):

(-) According to data for 21/02/17, short and long positions from large speculators have increased on the Chicago exchange. Long positions have grown by 4,953 contracts to 132,216, while short positions have gone up by 12,556 contracts to 183,011. Net short positions have grown from 39,144 contracts to 50,779;

(-) US 10-year bond yields: 2.486% (up 1% from 02/03/17);

(-) EURUSD: the daily Stochastic (5,3,3) and CCI indicators are moving downwards;

(-) EURUSD: the weekly Stochastic indicators (5,3,3), AO and AC are moving downwards;

(-) Long/short ratio as of 7:51 EET: 21%/78%, lots: 7309/26242 (previous day: 7006/20361), positions: 24247/61257 (previous day: 21885/48070).

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