By Gabriel Ojimadu, Alpari
Trading on the Euro again closed up on Tuesday. The pair extended its rally to grow by around 100 pips to 1.1097. Increased demand for the single currency was brought about by a slide in US bond yields, a general weakening of the dollar and the collapse of the resistance range from 1.1000 to 1.1022.
Due to the slide in bond yields, the probability of an interest rate hike in June has fallen. CME Group’s FedWatch has downgraded the probability of a rate hike in June from 73.8% to 69.2%, in July from 76.4% to 61.2% and in September from 82.9% to 80.9%.
The economic data coming out of the US is mixed. While industrial production for April exceeded expectations, the number of housing starts was lower than the forecast.
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The number of housing starts in the US in April fell by 2.6% to 1.17 million houses (forecast: 3.7% to 1.26 million, previous reading: -6.6% to 1.203 million).
Industrial production rose by 1% in April (forecast: 0.4%, previous reading revised from 0.5% to 0.4%).
In today’s Asian session, Euro-bulls continue their rally, which started on the 12th of May. The Euro/dollar gathered pace, broke the resistance at 1.0935 and the Euro index grew to 101.16. Now, the Euro is trading at 1.1104 and the Euro index is at 102.06. The closest resistance for the index is at 102.93 level, and the closest resistance for the Euro is at 1.1130 (61.8% of the downwards movement from 1.1616 to 1.0340). If the EUR/GBP cross strengthens past the 0.8600 mark, then the EUR/USD won’t stay at its current level.
The Euro is in a turbulent place at the moment, so I’m not making any predictions today. The time for drawing conclusions will be after the first wave of profit taking. There are no precursors for a reversal on the hourly timeframe apart from the fact that the price has reached the upper boundary of the U3 Moving Averages channel.
Day’s news (GMT+3):
- 07:30 Japan: industrial production (Mar);
- 11:30 UK: average earnings (Mar), claimant count change (Apr), ILO unemployment rate (Mar);
- 12:00 Eurozone: CPI (Apr), CPI core (Apr);
- 15:30 Canada: manufacturing shipments (Mar);
- 17:30 USA: EIA crude oil stocks change (12 May).
EURUSD rate on the hourly. Source: TradingView
Intraday forecast: low: n/a, high: n/a, close: n/a.
The bullish trend on the EUR/USD pair started with Friday’s statistics. A technical collapse of 1.10 level allowed buyers to push the price up to the 1.1117 mark.
During the American session, the price met with the U3 line after the release of disappointing statistics from the US housing market. There was no sharp rebound from the MA line following this. The pair then went into a consolidation phase on the U3 line.
The Euro has grown by 250 pips in the last 4 days without any rebounds. The TR trend line runs through 1.1053 on the current hour. A correction was due when the price reached the U3 line in the US session, but buyer optimism won’t allow this to happen just yet. According to myfxbook, the Short/Long ratio is currently 91%/8% or 39088/3646 lots. As the price increases, more and more people will want to sell. Some buyers are already cashing in on this growth and are afraid of opening any new long positions. I recommend using 1.1085 as a reference point. Yesterday, this marked the upper boundary of the up channel from 1.0871. A drop in the rate below 1.1085 would put pressure on bulls, forcing them to cash in on the positions they opened at a high price.
Positives for the Euro (+):
(+) US president Donald Trump favours a weaker dollar;
(+) According to data from 09/05/17, large speculators on the Chicago exchange have reduced short and long positions. Short positions have been reduced more than long ones by a factor of 12. Long positions have fallen by 2,899 to 152,481 contracts, while short positions have fallen by 34,758 to 127,553 contracts. The closing of short positions has resulted in an increased number of long positions. Net-long positions are now at 24,928 contracts;
(+) Small speculators have increased their long positions by 7,335 to 70,321 contracts. Short positions have fallen by 3,924 to 59,663 contracts. Long positions have again increased. Net-long positions currently stand at 10,658 contracts;
(+) According to myfxbook, the Short/Long ratio as of 7:59 EET is 91%/8%, lots: 39088/3646 (previous day: 26219/4279), positions: 73096/12846 (previous day: 61415/15707);
(+) US 10Y bond yields: 2.298% (down 1.71% from 16/05/17);
(+) German 10Y bond yields: 0.429% (up 2.14% from 16/05/17);
(+) EURGBP (W): AC, CCI (20), Stochastic (5,3,3) – up;
(+) EURGBP (D): AO, AC, CCI (20), Stochastic (5,3,3) – up;
(+) EURUSD (M): AO, AC, CCI (20), Stochastic (5,3,3) – up;
(+) EURUSD (W): AO, AC, Stochastic (5,3,3) – up;
(+) EURUSD (D): AO, AC, CCI (20), Stochastic (5,3,3) – up;
Negatives for the Euro (-):
(-) ECB head: revision of ECB’s monetary policy not required at present. On the 10th of May, he added that the bank is in no hurry to raise interest rates or to halt its asset purchasing program;
(-) On Tuesday, the 16th of May, according to CME Group’s FedWatch, the probability of a rate hike in June has fallen from 73.8% to 69.2, in July from 76.4% to 61.2% and in September from 82.9% to 80.9%;
(-) EURGBP (M): AC, AO, CCI (20), Stochastic (5,3,3) – down;
(-) EURGBP (W): AO – down;
(-) EURUSD (W): CCI (20) – down;
Built into the price:
(-) Tension surrounding the situation with North Korea. Increased demand for safe haven assets;
(-) The US Congress has approved a temporary budget, avoiding a government shutdown for the time being. A week’s delay will give time for knocking out a draft budget for the rest of the fiscal year (end of September). It became clear on the 1st of May that Republicans and Democrats had settled on a compromise to keep the budget going until the 30th of September;
(+) Emmanuel Macron has been sworn in as the new president of France;
(+) S&P has reaffirmed Germany’s credit rating at AAA/A-1+ with a stable outlook.