On Tuesday the demand for the American dollar allowed its respective index (DXY) to rebound to 95.49. In the first half of the day the US dollar was supported by two representatives from the ECB, Christian Noyer and Benoit Coeur. They both announced the ECB’s readiness to extend its QE program into summer. Weak German Eurozone and UK data put even more pressure on the pound and the euro.
In the second half of the day the dollar had support from positive statistics in the US housing market. The data significantly surpassed forecasted values.
In April the number of newly built homes in the US was 1.135 million (forecasted 1.019, previous reassessed from 0.926 to 0.944). In April the number of permits to build homes in the US was 1.143 million (forecasted 1.060, previous reassessed from 1.042 to 1.038).
The euro/dollar rate fell to 1.1118 before stabilizing around 1.1138. The price was below the D3 line. The bull divergence didn’t form and therefore I expect a renewal of the minimum and a sharp jump up before important events take place.
Investor attention is focused on the publication of the minutes from both the Bank of England’s last meeting and that of the US Federal Reserve. The Bank of England will publish at 11:30 EET and the Fed at 21:00 EET. At 9:00 EET Germany will publish their April producer price index.
On the daily graph the eurobears have fully covered last week’s growth and forced down the 1.1130 minimum from 11th May. A reverse pattern is forming. We wouldn’t really like the euro/dollar rate to return to 1.1355 to form a right shoulder. This is because if the euro rebounds from 1.1118, a head and shoulders pattern will appear on the daily. Do sellers need that? Not really, but buyers could do with it to close positions. Sellers would prefer a strengthening over the course of 2 days under the 1.1070/50 zone. The closest target is 1.1070.
The week still hasn’t closed, but at the moment the current candle has fully covered the previous one. The bears have just to strengthen the outcome and close at the current level or lower. If the euro/dollar closes lower than 1.1200, then next week the trend could be in the region of 1.0900-1.0850.