On Monday the 29th of January, trading on the euro closed down. The main driver for this decline was the rise of the US dollar as well as bond yields.
The US dollar index, which measures the... On Monday the 29th of January, trading on the euro closed down. The main driver for this decline was the rise of the US dollar as well as bond yields.
The US dollar index, which measures the dollar against a basket of major currencies, rose to 89.61, while US 10Y bond yields jumped to 2.7282%.
The euro spent the European session trading above 1.2385 before dropping to 1.2337 in the US session. This is where some technical factors from the daily timeframe came into play (two candlesticks with long wicks). By the day’s close, the euro had recovered to 1.2390.
In Asia, the euro is trading slightly down. The greenback is showing mixed dynamics against the majors. The euro crosses are showing a similar picture.
I reckon that the dollar’s rise could slow down today. Trader attention will be focused on European data; the preliminary CPI data from Germany as well as GDP data from both France and he Eurozone. Today also marks the beginning of the FOMC’s two-day meeting. Markets are expecting interest rates to be maintained at 1.25% - 1.50%.
In my forecast, I expect to see the euro drop to 1.2352 followed by a jump to 1.2400 as part of an upwards correction. Sellers shouldn’t let buyers get any further than the LB line, which currently runs through 1.2408, or else buyers will turn the trend in their favour and restore the euro to 1.2450. After the dollar’s collapse last week, its potential for growth hasn’t been completely exhausted. It’s in a position to correct itself until the 1st of February.
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Trading opportunities on the currency pair: last week, this cross declined by 293 pips to reach 1.3199. This resulted in a double top formation, which will be confirmed should the pair drop below... Trading opportunities on the currency pair: last week, this cross declined by 293 pips to reach 1.3199. This resulted in a double top formation, which will be confirmed should the pair drop below 1.3132. My forecast has the price breaking out of the B-B channel downwards, followed by a further drop to 1.2856 (50.0% of the growth from 1.2220 to 1.3492).
In my review on the EURCHF pair, I looked back at the SNB’s decision at the beginning of 2015 to abandon the cap on the EURCHF rate and lower the deposit rate to -0.75%. The pair dropped sharply by 19.6% in response to this, while the GBPCHF pair dropped by 18.8% to hit 1.2611. Since the SNB’s cap related only to the euro, the pound recovered its losses in the space of 10 months. However, after the Brexit vote, the pair dropped to hit a new low of 1.1784.
On the monthly timeframe, the GBPCHF pair has seen a 45% correction of the downwards movement from 1.5572 to 1.1784. The price is trading within the A-A channel. December’s candlestick closed down. This month, buyers tried to break through 1.35, but were blown off course by the retreat to safe haven assets and the dollar’s decline. In the end they only managed to get as far as 1.3209. This can happen; the franc is that kind of asset. The month isn’t over yet, but the wicks on the daily timeframe over the last 2 months have created a double top formation that is worth our attention.
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Trading opportunities on the currency pair: since the euro’s collapse in 2015, it’s been trading within the boundaries of the 3-year B-B channel. Considering that the upwards impulse is running... Trading opportunities on the currency pair: since the euro’s collapse in 2015, it’s been trading within the boundaries of the 3-year B-B channel. Considering that the upwards impulse is running out of steam, my forecast is projecting an exit from the C-C channel and a decline to 1.1372. I’m expecting a downwards correction amounting to 38.2% of the upwards movement from 1.0625 to 1.1833.
I haven’t done an idea on a cross with the franc since January 2015, when the Swiss franc jumped sharply against all other currencies. On the 15th of January, 2017, the Swiss National Bank (SNB) took everyone by surprise when they declined to protect the exchange rate against the euro at 1.20 and lowered the deposit rate to -0.75%.
A lower limit was set for this cross pair in September 2011 in order to protect against deflation and to strengthen the position of Swiss exporters. For several years, the regulator intervened when necessary to keep the exchange rate above 1.20. There was no limit on the number of times the bank could intervene, which was good news for speculators, who would earn from buying euros as the rate approached 1.20.
After the SNB’s abandonment of the euro cap, the EURCHF rate dropped by 19.6% to 0.9651. 3 years later, the rate has nearly returned to 1.20, marking a 22.6% increase to 1.1833.
Since the end of February 2017, the EURCHF pair has been in an uptrend. We can see from the chart that since August last year, this trend had slowed down. Last week, buyers encountered a resistance level at 1.2833. The exchange rate declined by 1.61% to reach 1.1601 over the course of the week.
Traders opened long positions of the franc, ignoring comments by the SNB’s chairman, Thomas Jordan, who announced that the central bank would intervene in the market if necessary. The franc, along with the yen and gold, became safe haven assets in the wake of the dollar’s collapse last week. This decline was initially triggered by the US government shutdown and intensified by US Finance Minister Mnuchin’s comments that a weak dollar was good for the US.
Taking into account the fact that the upwards trend has slowed down; I expect to the pair exit the C-C channel and drop to 1.1372. Sellers are in control for the time being. I don’t see the trend being broken, though, at least no further than the 38.2% correction of the upwards movement from 1.0625 to 1.1833. If the correction amounts to 61.8% after exiting the C-C channel, our target will drop.
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The euro rose against the dollar during the Asian session before erasing all it gains in the US. The dollar rose across the board, ignoring the weak US GDP data for the 4th quarter.
GDP figures... The euro rose against the dollar during the Asian session before erasing all it gains in the US. The dollar rose across the board, ignoring the weak US GDP data for the 4th quarter.
GDP figures came out lower than the estimates and the reading for the previous quarter was revised downwards, which is a negative for the dollar.
These negatives were cancelled out by the index for durable goods orders, which came out much better than expected, as well as the rise in US 10Y bond yields. The pair dropped from a high of 1.2494 to 1.2406 (-88 pips).
GDP index - +2.6% YoY (forecast: 3.0%, previous reading revised from 3.2% to 2.6%).
Durable goods orders (Dec) – 2.9% (forecast: 0.8%, previous reading revised from 1.3% to 1.7%).
My predictions for Friday came off in full. At the time of writing this review, the euro is trading at 1.2411. Buyers were met with resistance around the 1.24 region, through which the upper line of the recently broken B-B channel runs.
The daily candlestick has a bullish body and a long wick. This is the second candlestick with a long shadow that we’ve seen in recent times. These suggest a strong resistance around 1.25, so we’ll most likely see a correction on the euro ahead of Friday’s payrolls.
Trader attention this week will turn towards the upcoming FOMC meeting and Friday’s payrolls report for January.
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On Thursday the 25th of January, trading on the euro closed down on a day of high volatility. Sharp price fluctuations were seen on the major currency pairs as a result of comments from Trump,... On Thursday the 25th of January, trading on the euro closed down on a day of high volatility. Sharp price fluctuations were seen on the major currency pairs as a result of comments from Trump, Mnuchin, Draghi, and Jordan.
After hitting a new high in the European session, the euro entered a sideways trend leading up to Mario Draghi’s press conference. There wasn’t much of a reaction to the initial decision. The ECB meeting on monetary policy concluded with decisions to maintain the refinancing rate at 0.0% and the deposit rate at -0.4%.
The QE program is being maintained until September at a volume of 30bn EUR a month. This could be extended should the need arise. Interest rates are expected to remain at their current level for the long term. Should the economic conditions in the Eurozone get worse, the scale of the program could be increased.
Mario Draghi noted that the Eurozone’s economy is growing faster than expected. Volatility on the single currency is a current source of uncertainty and so stimulus programs need to be maintained in order to keep inflation up. Inflation over the next few months is set to remain around its current level.
The euro/dollar pair jumped on Draghi’s comments as the Eurozone’s economy grows along with the euro. Euro bulls received some additional support from Thomas Jordan, the chairman of the Swiss National Bank, after he told reporters that the SNB was ready to intervene in the Forex market if needed. This would be on the EURCHF pair to weaken the national currency.
Donald Trump halted the dollar’s slide during the US session. In an interview with CNBC, he said that traders had misinterpreted Steve Mnuchin and taken his comments about a weak dollar out of context. The euro then dropped by nearly 200 pips from 1.2537 to 1.2364 (-173 pips).
I have no desire to analyse markets when they react so strongly to verbal interventions because at times like these, the major players rely on crowd psychology to guide their trading. Also, we don’t know what other statements we could get from officials. It was enough just for Trump to say that Mnuchin’s comments were misinterpreted for the euro to slump by nearly 200 pips.
The price has returned from the zone between U3 and U4 to the LB balance line (sma 55). This marks a drop of 135 pips, and now the euro is trading at 1.2450. Given that the euro has dropped below 1.2389, there’s a chance of it correcting even lower on the daily pin bar with a long upper shadow. Moreover, the target of 1.2533 has been reached on the monthly timeframe.
My forecast has the euro recovering to 1.2475/80. If it stays with the trend, the price could rise as far as 1.2503, so don’t be in too much of a hurry to short the euro if that’s what you’re planning to do. Once a certain level is reached, you need to look at trader sentiment towards US bonds and euro crosses.
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