EUR/USD: Euro still under pressure from the EUR/GBP cross

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On Thursday, the Euro once again closed down against the greenback. The common European currency has now fallen by 190 pips against the dollar over the last 3 days to 1.0673 and by 89 pips against the British pound to 0.8560.

The Euro started to depreciate faster against the pound after the UK officially started the process of exiting the EU on the 29th of March. Judging by cash flows, investors look to be converting their Euros into pounds. They're clearly of the opinion that Brexit won't have such a drastic effect on the British economy. The divorce process should come to an end at some point in 2019. On the other hand, the Euro's collapse against the pound could be related to the coming to an end of this year's first quarter. All the strong levels from which the price could have rebounded have been broken through. US 10Y bond yields have grown by 1.17% to 2.413%.

Market expectations:

Today is Friday, the end of the week, month, and first quarter. I've decided not to make a forecast given that the Euro's two-day fall on the cross has obscured all the technical pictures on the EUR/USD pair. Buyers' attempts to induce a rebound from the 38.2% Fibo level (growth from 1.0495 to 1.0906) fell flat. The EUR/USD has fallen to 1.0672. The closest support from which we can possibly expect a rebound is between 1.0628 and 1.0652.

Day's news (GMT+3):

  • 09:00 Germany: retail sales (Feb), UK: Nationwide housing price index (Mar);
  • 10:55 Germany: unemployment change (Mar);
  • 11:30 UK: current account (Q4), GDP (Q4), total business investment (Q4);
  • 12:00 Eurozone: CPI (Mar), CPI core (Mar);
  • 15:30 Canada: GDP (Jan), USA: core personal consumption expenditure price index (Feb), personal income (Feb);
  • 16:45 USA: Chicago PMI (Mar);
  • 17:00 USA: FOMC member Kashkari's speech, Michigan consumer sentiment index (Mar).

EURUSD rate on the hourly. Source: TradingView.

Intraday forecast: low: n/a, high: n/a, close: n/a.

On Thursday, the Euro closed down against the US dollar. Neither the 135th degree nor the 38.2% Fibo level was able to stop sellers. The EUR/USD pair fell to 1.0672 on the back of a rise in US bond yields and a fall on the EUR/GBP cross.

On the 29th of March, after Britain's withdrawal from the EU officially got underway, the Euro broke through the trend line at 1.0782. From there, the projected course put the target at around the 1.0630 mark. Investors seem to be slightly concerned about the triggering of Article 50 of the Lisbon Treaty judging by the fact that they are now buying pounds.

The 38.2% Fibonacci level has been broken through. The 61.8% level runs through 1.0652, and the 257th degree through 1.0646. A new support zone is forming between 1.0628 and 1.0652 levels. The current exchange rate on the EUR/USD is 1.0676.

Given that today marks the end of the month as well as the first quarter, I've decided not to make any predictions. It's worth noting that the trend correction was 22.5 degrees. It currently runs through 1.0698 level. If the bulls manage to get past this, then it is likely that the trend line at 1.0869 will be broken through, followed by a restoration to the lb line at 1.0724.

Positives for the euro (+):

Fundamental:

(+) Head of the ECB, Mario Draghi, has hinted that the central bank may not need to provide any further stimulus to revitalise Europe's economy. From April to December 2017, the ECB will reduce their monthly assets purchases to 80 to 60 billion EUR;

(+) ECB bosses have discussed the possibility of raising interest rates before the QE program comes to an end;

(+) On the 24th of March, Donald Trump withdrew his proposed healthcare bill to replace Obamacare from the US Congress' agenda;

Technical (short-term):

(+) According to data from 21/03/17, large speculators on the Chicago Exchange have significantly increased their long and decreased their short positions. Long positions have grown by 10,138 to 158,646 contracts, while short positions have fallen by 10,325 to 176,891 contracts. Net short positions have fallen from 38,707 to 18,245 contracts. Small speculators have increased their long positions by 3,811 to 65,280 contracts and short positions by 4,779 to 63,093 contracts. Net long positions have fallen from 3,158 to 2,178 contracts;

(+) In Asia, US 10Y bond yields have fallen by 0.22% to 2.413%;

(+) EURGBP (W):  the CCI (20), AO and AC are up;

(+) EURUSD (M): the Stochastic (5,3,3) is up;

(+) EURUSD (W): The Stochastic (5,3,3), AO, AC, and CCI (20) are up;

Negatives for the euro (-):

Fundamental:

(-) Eric Rosengren, president of the Boston Fed, argues that the central bank should raise interest rates every other session, meaning that he expects to see another 3 hikes this year;

(-) FOMC member Williams is envisaging another 2-3 rate hikes this year and isn't ruling out the possibility of even more;

(-) According to CME Group's FedWatch Tool, on Thursday  the 30th of March, the probability of a rate hike in May has risen from 4.3% to 6.4%, in June from 52.9% to 54.0% and in July from 58.8% to 60.8%;

(-) Political risks in Europe (French elections);

Technical factors (short-term):

(-) Short/long ratio according to myfxbook as of 07:34 EET: 27%/72%, lots: 17069/44373 (previous day: 23661/25376), positions: 41132/67660 (previous day: 54075/51699);

(-) US 10-year bond yields: 2.413% (up 1.17% from 30/03/17);

(-) German 10-year bond yields: 0.340% (down 1.16% from 30/03/17);

(-) EURGBP (W): The Stochastic (5,3,3) is down;

(-) EURGBP (D): the AC, AO, CCI (20) and Stochastic (5,3,3) indicators are down;

(-) EURUSD (M): the AO and AC indicators are down;

(-) EURUSD (D): the AO, AC, CCI (20) and Stochastic (5,3,3) indicators are down;

Built into the price:

(-)  The Ex-Prime Minister of France, Alain Juppe, has ruled himself out of participating in the presidential election;

(-) Fed member Evans is expecting 2-3 rate hikes in 2017. The Federal Reserve will make a decision about the next hike in June;

(-) President of the Philadelphia Fed, Harker, announced that the Federal Reserve will continue to gradually increase interest rates throughout 2017;

(+) 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;

(+) 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;

(+) The Greek government has made some progress in its talks with international creditors on the second stage of their reform program;

(+) Ewald Nowotny, a member of the ECB's governing council, has said that the bank could raise the deposit rate before the main refinancing rate;

(+) ECB member Lautenschläger warns that it's time to prepare for a change in the bank's policy.

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