EUR/USD: market correction of 135 degrees

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    Trading on the Euro/dollar pair closed down on Tuesday. In the space of two days from the 8th to 9th of May, the single currency fell by 158 pips (-1.43%) to 1.0863. The French presidential election is now being given secondary importance as trader attention turns back towards the US central bank. According to the latest data from CME Group's FedWatch, futures contract prices put the probability of an interest rate hike by the Fed in June at 83.1%.

    Market expectations:

    Today (Wednesday), the economic calendar is empty. Mario Draghi's speech, scheduled for 15:00 EET, shouldn't have much of an effect on our currency pair. Draghi is often quite reserved in his statements.

    When sellers managed to hold below 1.0940, they cancelled out the collapse of the resistance from the 4th of May. Pressure on the Euro increased until it reached the support at 1.0895. The support was formed from the consolidated minima from the 24th of April. As we can see, this too was unable to resist the pressure brought about by traders correcting their open positions after Emmanuel Macron's victory. After the Euro fell to 1.0863, the market was once again reminded of the price gap.

    Given that the weakening of the Euro from a high of 1.1021 stayed within 135 degrees, and that the trend line has been broken through in Asia, I'm predicting some correctional movement to the 45th degree at 1.0915.

    Day's news (GMT+3):

    • 15:00 Eurozone: ECB president Mario Draghi's speech;
    • 15:30 USA: import price index (Apr);
    • 17:30 USA: EIA crude oil stocks change (May 5);
    • 19:00 USA: FOMC member Rosengren's speech;
    • 21:00 USA: monthly budget statement (Apr).

    EUR/USD: market correction of 135 degrees

    EURUSD rate on the hourly. Source: TradingView.

    Intraday forecast: low: 1.0868, high: 1.0916, close: 1.0897.

    After the French election, the Euro fell by 158 pips in the space of just two days. I'm not expecting a renewal of the maximum 1.1021 over the next 3 days. After an upwards correction, I expect to see a new wave of short positions on the Euro. Judging by the sentiment, sellers are ready to return the price to 1.0821 level (open gap).

    They'll meet with some resistance on the way at 1.0850. In oder to break through on the first attempt, we need to see a correction on this two-day slide to the 45th degree. They'll be wary of allowing buyers to get past 1.0915 as this could subsequently tip the balance back in their favour.

    My case for growth to the 45th degree will collapse if the hourly candlestick closes below yesterday's minimum of 1.0863. Given that the Stochastic oscillator is in the sell zone, I'm expecting the price to restore from 1.0879 (the lower boundary of 70% of the trading volume on the 9th of May).

    Positives for the Euro (+):

    Fundamental:

    (+) US president Donald Trump favours a weaker dollar;

    Technical (short-term):

    (+) According to data from 02/05/17, large speculators on the Chicago exchange have reduced short positions and slightly increased long positions. Long positions have gone up by 1,987 to 155,381 contracts and short positions have been reduced by 19,029 to 162,311 contracts. Net-short positions have fallen from 21,016 to 6,930 contracts;

    (+) According to myfxbook, the Short/Long ratio as of 7:01 EET is 53%/46%, lots: 10452/9000 (previous day: n/a), positions: 35485/25987 (previous day: n/a);

    (+) German 10Y bond yields: 0.426% (up 1.67% from 09/05/17);

    (+) EURGBP (W): Stochastic (5,3,3), AC, CCI (20) – down;

    (+) EURGBP (D): AO – up;

    (+) EURUSD (M): Stochastic (5,3,3), AO, AC, CCI (20) – up;

    (+) EURUSD (W): AO, AC, Stochastic (5,3,3), CCI (20) – up;

    Negatives for the Euro (-):

    Fundamental:

    (-) ECB head: revision of ECB's monetary policy not required at present;

    (-) On Tuesday, the 9th of May, according to CME Group's FedWatch, the probability of a rate hike in June remains 83.1%. The probability in July has risen from 84.4% to 84.7% and in September from 91.2% to 91.8%;

    Technical (short-term):

    (-) Small speculators have reduced their short positions by 3,768 to 62,985 contracts. Short positions have fallen by 2,147 to 63,604 contracts. Last week, the number of open short positions surpassed that of long positions. Net-short positions currently stand at 619 contracts;

    (-) US 10Y bond yields: 2.389% (up 0% from 09/05/17);

    (-) EURGBP (M): AC, AO, CCI (20), Stochastic (5,3,3) – down;

    (-) EURGBP (D): AC, CCI (20), Stochastic (5,3,3) – down;

    (-) EURUSD (D): AC, AO, CCI (20), Stochastic (5,3,3) – 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 is France's president-elect;

    (+) S&P has reaffirmed Germany's credit rating at AAA/A-1+ with a stable outlook.

    Source: Alpari

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