Trading on the euro on Monday closed down. The EUR/USD rate fell from a maximum of 1.0714 to 1.0651 (-63 pips). The economic calendar was empty and the euro underwent a correction across the market after Friday's rally.
On Tuesday, the FOMC's two-day meeting begins. On Wednesday, the Federal Reserve will announce its interest rate decision. Most are expecting a 0.25% hike in federal interest rates. The likelihood of a rate hike currently stands at 93%. The meeting will be followed by a press conference with the Chair of the Board of Governors, Janet Yellen.
The EUR/USD instrument is currently trading at 1.0653. I'm forecasting a drop to 1.0630. As it happens, there is still time for the euro to correct and take a wait-and-see stance before the Fed announces its decision.
Day's news (GMT+3):
- 10:00 Germany: CPI (Feb);
- 13:00 Germany: ZEW survey - economic sentiment (Mar);
- 13:00 USA: NFIB business optimism index (Feb);
- 13:00 Eurozone: industrial production (Jan);
- 13:00 Eurozone: ZEW survey - economic sentiment (Mar);
- 14:00 Germany: monthly Bundesbank report;
- 15:30 USA: PPI (Feb);
- 23:30 USA: API weekly crude oil stock.
EURUSD on the hourly. Source: TradingView
Intraday forecast: low: 1.0630, high: 1.0659 (current in Asia), close: 1.0645.
Monday v Friday worked out as expected. The EUR/USD fell from a maximum of 1.0714 to 1.0651. In Asia, the minimum renewed at 1.0645.
The hourly trend line has been broken through, and a pin bar formation has recently appeared. The Stochastic has been crossed downwards. I'm forecasting a slide to 1.0630. I must warn you, though, that judging by patterns, the situation is 50/50. The euro could just as easily return to 1.0714, making a cup formation. I've decided to follow the cycles and go for a weakening of the euro today, followed by growth on Wednesday and Thursday.
Positives for the euro (+):
(+) US president Donald Trump favours a weaker dollar;
(+) The threshold for acceptable US government debt of 20.1 trillion USD may be reached by March this year. This will create headaches for new US president Donald Trump. A new law on the debt ceiling will come into force on the 16th of March 2017;
(+) The Greek government has made some progress in its talks with international creditors on the second stage of their reform program;
(+) Head of the ECB, Mario Draghi, has hinted that the central bank may not need to provide any further stimulus to revitalise Europe's economy. From April to December 2017, the ECB will reduce their monthly assets purchases to 80 to 60 billion EUR;
(+) ECB bosses have discussed the possibility of raising interest rates before the QE program comes to an end;
(+) Long/short ratio according to myfxbook as of 7:30 EET: 55%/44%, lots: 21002/16534 (previous day: 24102/10020), positions: 54808/42583 (previous day: 57118/22205)
(+) EURGBP (W): the CCI (20), AO, AC and the Stochastic (5,3,3) are moving upwards;
(+) EURGBP (D): the AO is moving upwards. The trend line has been broken through;
(+) EURUSD (M): the Stochastic (5,3,3) is moving upwards;
(+) EURUSD (W): The Stochastic (5,3,3), AO, AC, and CCI (20) have reversed upwards;
(+) EURUSD (D): the Stochastic (5,3,3), AC, and AO indicators are moving upwards. The CCI (20) is in the zone above +100. The trend line has been broken through;
Negatives for the euro (-):
(-) According to CME Group's FedWatch Tool, as of Monday the 13th of March, the probability of a rate hike in March has grown from 88.6% to 93.0%, in May from 89.6% to 93.5%, and in June from 95.4% to 97.1%;
(-) Political uncertainty in Europe (French elections and Brexit). Ex-Prime Minister Alain Juppe has ruled himself out of participation in the French presidential elections;
Technical factors (short-term):
(-) According to data from 07/03/17, large speculators on the Chicago Exchange have increased their long and decreased their short positions. Long positions have fallen by 5,404 to 137,358 contracts, while short positions have grown by 8,820 to 196,124 contracts. Net short positions have grown from 44,542 to 58,766 contracts.
(-) German 10-year bond yields: 0.471% (down 2.68% from 13/03/17);
(-) US 10-year bond yields have risen to 2.607% (up 0.96% from 13/03/17). In Asia, US 10Y bond yields have grown by 0.30% to 2.615%;
(-) EURUSD (M): the AO and AC indicators are moving downwards;
(-) EURGBP (D): the AC, CCI (20), and Stochastic (5,3,3) indicators are moving downwards;
Built into the price:
(-) President of the Philadelphia Fed, Patrick Harker, has hinted at a rate hike in March;
(-) President of the Dallas Fed, Kaplan, says that it's better to raise rates sooner rather than later;
(-) President of the San Francisco Fed, John Williams, says that March is a good time for the FOMC to seriously consider a rate hike;
(-) FOMC member Lael Brainard says that the US economy is growing and that a rate hike would soon be appropriate;
(-) Head of the FOMC, Janet Yellen, has said that interest rates might be raised in March;
(-) Head of the Fed in Richmond, Lacker, has said that losing control over inflation could prove very costly;
(-) Vice-president of the Federal Reserve, Stanley Fischer, echoes his colleagues' comments about rate hikes;
(+) François Bayrou, leader of the "Democratic Movement" party, has ruled out running for the presidency and thrown his weight behind independent candidate Emmanuel Macron;
(+) Marine Le Pen has had her EU parliamentary immunity from prosecution lifted for political reasons;
(-) US federal interest rates to be raised by 0.25%