Trading on the Euro on Monday closed slightly up. The price corrected from 1.0570 to 1.0607. The economic calendar was bare, so market activity remained low. The price spent most of its time in a sideways trend.
A speech from the head of the US Federal Reserve, Janet Yellen, did nothing to surprise markets and thus had no effect on the dollar. She repeated that the US economy is in good shape and that the goal of gradually increasing interest rates is to maintain full employment and keep inflation around the 2% mark without overheating the economy. She made no mention of reducing the Fed's 4.5 trillion dollar balance sheet.
Monday's session closed with the price on the trend line at 1.0595, meaning that the break wasn't confirmed. This also makes the situation for Tuesday ambiguous as the British pound is showing some positive dynamics against the US dollar.
It's now important for the euro-bulls whether or not the EUR/GBP cross will rise above 0.8530 level. If it does, the Euro will strengthen across the board.
For Tuesday, I'm expecting the EUR/USD pair to continue its flat. If the EUR/GBP cross manages to develop a bullish impulse, we can expect our pair to surpass 1.0621 as the greenback falls against most major currencies. The highest volume seen during yesterday's trading occurred at 1.0618. We need to surpass this level in order to discourage the bears from selling.
Day's news (GMT+3):
EURUSD rate on the hourly. Source: TradingView.
Intraday forecast: low: 1.0581 (current in Asia), high: 1.0610, close: 1.0600.
The price didn't immediately go into a correctional phase on Monday. Euro sales on the crosses put our main pair under pressure. Before rising up to 1.0607, the Euro rate returned to 1.0570 level. A double base model looked to be forming on the hourly timeframe but this didn't come to pass. A falling cross tipped the scales back in the favour of sellers. In Asia, the rate has fallen to 1.0581.
At the current moment, I can't envisage our pair growing significantly. I think that today's movements will largely mirror Monday's. US bond yields are currently in the red. Taking this into account, my forecast has our target on the trend line at 1.0610. There's nothing to contradict this view on the hourly indicators.
Given that the Stochastic is down, the euro-bulls have about 3-4 hours to try and create a bullish impulse. Keep an eye on the main EUR/GBP cross. For our main pair to grow, the cross needs to break 0.8530 level.
The highest trading volume yesterday occurred at 1.0618. If this level gets broken through, then after the trend line gets broken through, the 45th degree will be unlikely to stop buyers.
There are many buyers in waiting. This means that as soon as the Stochastic reverses into the buy zone, the bearish risk will sharply increase. By the end of yesterday's session, there was no confirmed break in the trend line, even though the price is currently below it. This means that when making trades on corrections, it would be worth lowering the volume of your positions.
While the trend line is alive and well on the hourly timeframe, sellers will use this growth to sell their Euros against the crowd.
Positives for the euro (+):
(+) Bundesbank president, Jens Weidmann, has stressed that the ECB needs to bring an end to its QE program earlier than planned;
(+) ECB bosses have discussed the possibility of raising interest rates before the QE program comes to an end;
(+) 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 from 80 to 60 billion EUR;
(+) On the 24th of March, Donald Trump withdrew his proposed healthcare bill to replace Obamacare from the US Congress' agenda;
(+) Small speculators have increased their long positions by 1,181 to 65,366 contracts. Short positions have been reduced by 3,261 to 59,842 contracts. Net-long positions have grown from 1,082 to 5,524 contracts;
(+) US 10-year bond yields: 2.353% (down 1.21% from 10/04/17);
(+) In Asia, US 10Y bond yields have fallen by 0.85% to 2.341%;
(+) EURGBP (W): CCI (20) - up;
(+)EURGBP (D): CCI (20), AC, AO - up;
(+) EURUSD (M): Stochastic (5,3,3), AO, AC, CCI (20) - up;
(+) EURUSD (W): AO, AC - up;
(+) EURUSD (D): AC - up;
Negatives for the euro (-):
(-) Head of the ECB - revision of monetary policy not required for the moment;
(-) According to CME Group's FedWatch Tool, on Monday the 7th of April, the probability of a rate hike in May has fallen from 5.3% to 4.3%, in June from 67.2% to 66.2% and in July from 73.8% to 68.7%;
(-) Political risks in Europe (French elections);
Technical factors (short-term):
(-) According to data from 04/04/17, large speculators on the Chicago exchange have reduced their long and short positions. long positions have fallen by 4,506 to 155,947 contracts, while short positions have fallen by 1,314 to 166,294 contracts. Net-short positions have grown from 7,155 to 10,347 contracts;
(-) Short/long ratio according to myfxbook as of 7:11 EET: 19%/80%, lots: 7863/31489 (previous day: 3399/12390), positions: 28881/63205 (previous day: 11662/29566);
(-) German 10-year bond yields: 0.207% (down 11.54% from 10/04/17);
(-) EURGBP (M): AC, AO, CCI (20), Stochastic (5,3,3) - down;
(-) EURGBP (W): Stochastic (5,3,3), AO, AC - down;
(-) EURGBP (D): Stochastic (5,3,3) - down;
(-) EURUSD (W): Stochastic (5,3,3) - down;
(-) EURUSD (D): Stochastic (5,3,3), AO, CCI (20) - 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;
(-) 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. The Fed could also start reducing its balance sheet this year, which is earlier than many economists had predicted;
(-) Dallas Fed president Kaplan has said 3 rate hikes in 2017 is his base case;
(-) FOMC member Mester says that the Fed needs to reduce the size of its balance sheet this year;
(-) St. Louis Fed president Bullard has said that the Federal Reserve needs to act quickly on normalising its balance sheet;
(+) 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.