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EURUSD: dollar declining along with US10Y


On Wednesday the 31st of January, trading on the euro/dollar pair closed slightly up, leaving both a long wick and a long tail on the candlestick. The euro initially dropped to 1.2337 at the beginning of the European session. Prices then recovered from there to 1.2453 (+116 pips) on the back of declining US bond yields.

After consumer confidence data for the US was published as well as US Finance Minister Mnuchin’s comments, US 10Y bond yields hit a three-year high. Mnuchin said that a strong dollar was in the US’s long-term interest. The dollar rose along behind US bond yields in response.

US 10Y bond yields grew from 2.683% to 2.735%. The euro corrected from 1.2453 to 1.2384 (-69 pips).

The US consumer confidence index came out at 125.4 (forecast: 123.1, previous reading revised from 122.1 to 123.1).

Day’s news (GMT+3):

  • 10:00 Switzerland: UBS consumption indicator (Dec).
  • 10:00 Germany: retail sales (Dec).
  • 10:45 France: CPI (Jan).
  • 11:55 Germany: unemployment change (Jan), unemployment rate (Jan).
  • 12:00 Switzerland: ZEW survey – expectations (Jan).
  • 13:00 Eurozone: CPI (Jan), unemployment rate (Dec).
  • 16:15 USA: ADP employment change (Jan).
  • 16:30 Canada: GDP (Nov), industrial product price (Dec).
  • 17:45 USA: Chicago PMI (Jan).
  • 18:00 USA: pending home sales (Dec).
  • 18:30 USA: EIA crude oil stocks change (26 Jan).
  • 22:00 USA: Fed interest rate decision and monetary policy statement.

Fig 1. EURUSD hourly chart. Source: TradingView

For the most part, my predictions for yesterday came true. The correction from 1.2494 completed the double top formation. As I was writing the review, buyers pushed the price up to the 45th degree at 1.2440. On the current hour, the resistance runs through 1.2450; the upper line of the downwards channel. This is made up from three values: L 1.2364, L 1.2337, and H 1.2464.

Today, all eyes will be on the Federal Reserve’s meeting and their interest rate decision. According to the latest futures on interest rates, the likelihood of a rate hike today is 5.2%. There won’t be a press conference following the meeting.

There could be no reaction at all to the Fed’s decision. I do think it possible, however, that buyers will push the price up a bit ahead of Friday’s NFP report. Moreover, all the main euro crosses are trading up.

The dollar is currently declining due to a drop in US 10Y bond yields. My forecast has our pair rising to 1.2450, before dropping to 1.2406 by the end of the day.

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