On Monday the 20th of November, trading on the euro/dollar pair closed down. The euro was under pressure from the off due to the fact that German chancellor Angela Merkel has failed to reach an agreement with other parties to form a coalition government.
After a drop to 1.1722 (-73 pips), the euro hit a new intraday high of 1.1809. There were no fundamental factors behind this jump, so the price had returned to 1.1728 by the session’s close.
The dollar was given a boost by a rise in US bond yields. Mario Draghi then added to pressure on the euro. He didn’t mention monetary policy in his speech, but he did talk about low inflation.
Day’s news (GMT+3):
Fig 1. EURUSD rate on the hourly. Source: TradingView
Yesterday’s rebound was unexpected. The price made it to the 67th degree in a couple of hours. The euro’s dropped gathered pace as the price corrected downwards from 1.1809 and broke the LB balance line down. Still, from the intraday high, the price fell by the same 67 degrees. In the end, this turned out to be a false breakout of the A-A channel.
Market participants continue to watch the situation in Germany closely. German president Frank-Walter Steinmeier has called on the parties to try and reach a compromise. So long as there is uncertainty in Germany, I fear that on Tuesday, the euro is going to drop to the 112th degree at 1.1674. I’m expecting the drop to begin from 1.1755 (22 degrees). The quicker the price reaches 1.17, the higher the probability of my forecast working out. This will all fail if the hour closes above the LB balance line, although the price could repeat yesterday’s movements.
Trader activity will begin to subside towards the end of the week. The US will celebrate Thanksgiving on Thursday and markets will close early on Friday. Janet Yellen is set to speak on Wednesday night shortly after the publication of the minutes of the FOMC’s latest meeting.