Trading opportunities for the currency pair:Movement on the EUR/USD pair continues to correlate with that of 2005. According to historical patterns, a large downwards correction is due to take place after the 15th of April. Despite this, the rate may still deviate significantly upwards.
After Friday’s payrolls, the price came out of the 1.0494 - 1.0626 range. As it breaks 1.0715, growth will accelerate to 1.0780. This is where the euro will stop growing and a symmetrical triangle will form. If a rebound doesn’t follow from this, and the rate breaks the 1.0829 support, we could see the price restore all the way to 1.1021. Should the daily candlestick close below the 2 copy line, then we can forget about this potential surge. We’re working towards 1.1021 with an eye on the 1 copy and 2 copy lines. The euro should reach the TR1 trend line by the 10th of April.
The previous idea for the EUR/USD currency pair was published on the 19th of December 2016. At the time of publication, the pair was trading at 1.0451. In my review, I proposed various possible scenarios for the pair’s development based on historical patterns. My model was based on the price pattern from 2005, which had a 90% correlation with price movements at the time. Back then, I was expecting a rebound from the lower boundary of the A channel to 1.0672 by the end of the year.
What actually happened is that the euro rebounded from the lower boundary of the A-A channel on the 20th of December 2016. On the 30th of December, the euro restored to 1.0654. Due to a slide from 1.0451 to 1.0352, the euro missed its target by 18 pips. The first few days of the new year were very volatile. In the space of two days, buyers receded by 314 pips. Despite this, on the 2nd of February, the price restored to 1.0828.
From a maximum of 1.0828, the euro fell back to 1.0453. The correction came to 61.8% of the upwards movement from 1.0340 to 1.0828. From the 22nd of February, the pair got stuck in a sideways trend for 10 days. The price came out of this trend on Friday as the US jobs report was published.
The number of new nonfarm jobs in the US in February grew by 235,00, with a forecast of 200,000. The figure for December was revised from 157,000 to 155,000, and January's was upgraded from 227,000 to 238,000. The aggregate revision across the two months comes to +9,000.
In response to such strong figures, the euro fell to 1.0594, which was followed immediately by a phase of growth as demand for euros on all the crosses rose. Remember that on Thursday the 9th of March, at the ECB press conference, traders were given the impression that the regulator may not need to take any further measures to stimulate the European economy. By the end of the day, the euro index has risen from 100.03 to 100.81, and the EUR/USD rate had risen from 1.0582 to 1.0671.
Traders ignored the US statistics given that the market has already prepared itself for a rate hike on the 15th of March. The Non-Farm Payrolls is the final dataset that the Fed will take into account before making their decision.
The EUR/USD rate has risen by over 100 pips. After the NFP's release, the euro strengthened across the whole market following Bloomberg's report that during the ECB's meeting on Thursday, the governing members discussed the idea of a rate hike before the QE program expires. According to Bloomberg, members of the governing council didn't make any official decisions or set any deadlines, but simply exchanged their opinions on the matter.
Daily chart. Source: TradingView
The vertical line imposed at 19/12/16 represents when the previous idea on this currency pair was published. The grey bars represent the period from 22/11/04 to 04/07/05. It has a 90% correlation with the period from 03/05/16 to 16/12/16 (163 trading days). From the chart, we can see how the price changed over a period of 58 trading days. With the most recent quote, this has extended from 163 to 221 days to cover the period from 22/11/04 to 29/09/05, and the correlation is now 93%.
After the ECB's meeting, there was a change in trader sentiment on the market. If we look at historical patterns, then after a 23 day flat (until the 17th of April), the rate should start to fall again.
The correlation between the two periods is likely to remain high, although we may see some sharp surges in the rate during this time. Now let's take a look at the weekly chart.
Weekly chart. Source: TradingView
The price has rebounded from the lower boundary of the A-A channel to the support at 1.0829. Now, I've drawn two trend lines from the minima of 1.0462 and 1.0517 (1), and now I've attached a copy of this to the minimum at 1.0340. From here I've drawn a channel that projects some bullish movement to 1.1021, which is on the TR1 trend line. From here, I'm envisaging the formation of a W-model. 1.0965 is at 50% of the downwards movement from1.1616 to 1.0340.
If buyers are unable to break through 1.0778, then my prediction for growth may not come off. In such a case, I expect a flat before April, followed my some downwards movement. To understand why I'm forecasting a W-model, see below.
Daily chart. Source: TradingView
Here, the weekly values are showed on the daily chart. The daily timeframe gives us a detailed picture. On Friday, the rate came out of the 1.0494 - 1.0626 range. As the price breaks 1.0715, growth will accelerate. Bulls are unlikely to stay at this level. They will more likely apply the brakes around 1.0780 given that many traders can see a symmetrical triangle forming. If the price doesn't rebound from here, I'm expecting it to restore to 1.1021. Should the daily candlestick close below the 2 copy line, we can forget about the scenario for growth. The bulls still have time for a correction before the 10th of April, when the French presidential elections will start to weigh heavily on the market.
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Forecasts which are made in the review constitute the personal view of the author. Commentaries made do not constitute trade recommendations or guidance for working on financial markets. Alpari bears no responsibility whatsoever for any possible losses (or other forms of damage), whether direct or indirect, which may occur in case of using material published in the review.
Director of Alpari's analytical department
Senior Alpari analyst
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