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EURUSD: pair trading around the LB balance line


On Monday the 26th of February, trading on the euro closed up. In the European session, the euro jumped against the dollar to 1.2355 before retreating to 1.2278 ahead of ECB president Mario Draghi’s speech.

His address in the European parliament was pushed back from 15:40 to 17:40 (GMT+3). He didn’t say anything new, so the effects of his speech on markets were minimal. Draghi reiterated that prolonging the QE program was not on the agenda at the latest ECB meeting, while inflation is still dependent on the regulator’s stimulus measures.

After the publication of weak US housing data, the euro reversed upwards. US stock indices closed the day up by more than 1%. 10 out of the 11 sectors of the S&P 500 posted an increase. Judging by the growth of these indices, investors are unfazed by the possibility of inflation gaining momentum or the prospect of upcoming interest rate hikes. What’s interesting is that the dollar declined while US10Y bond yields grew. These divergences happen sometimes.

US data:

New home sales in the US in January dropped by 7.8% to 593,000 (forecast: 655,000, previous reading revised from 625,000 to 643,000). The median house price is 323,000 USD.

The Chicago Fed national activity index dropped to 0.12 from December’s value of 0.14.

Day’s news (GMT+3):

  • 10:45 France: consumer confidence (Feb).
  • 12:00 Eurozone: M3 money supply (Jan), private loans (Jan).
  • 13:00 Eurozone: consumer confidence (Feb), industrial confidence (Feb), economic sentiment indicator (Feb), business climate (Feb).
  • 16:00 Germany: harmonised index of consumer prices (Feb).
  • 16:30 USA: durable goods orders (Jan), goods trade balance (Jan), Fed’s Powell speech.
  • 17:00 USA: housing price index (Dec).
  • 18:00 USA: Richmond Fed manufacturing index (Feb).

Fig 1. EURUSD hourly chart. Source: TradingView

My prediction that the euro would rise yesterday was proven right. I’d also allowed for the rate to return to the balance line, but I didn’t expect a drop below 1.2280.

Today, in Asia, the euro is trading up. At the time of writing, the euro is at 1.2328. My forecast shows quotes rising to the 67th degree at 1.2361, followed by a drop to around 1.2318. We can expect to see a further decline to 1.2296 in Wednesday’s Asian session.

The centre of focus today will be new Federal Reserve Chair Jerome Powell’s address to the House Financial Services Committee in Congress at 16:30 (GMT+3).Traders are hoping to hear Powell’s thoughts on monetary policy and the economy in general. I decided not to account for his speech in my forecast, so I relied mostly on hourly cycles and patterns (there have been similar fluctuations in the past). We should also keep in mind that Italy is holding parliamentary elections on Sunday.

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