On Wednesday the 18th of October, trading on the euro/dollar pair closed up. After hitting a new weekly low, the price mounted a recovery to 1.1817 that extended into the Asian session. I can’t see any fundamental factors that would have caused the euro’s 87-pip rally. I reckon the price underwent a correction on the longer timeframes.
Newswires are reporting that the euro’s rally was the result of expectations that at this month’s ECB meeting, Mario Draghi will announce a reduction in the regulator’s asset purchasing program effective from January 2018. We could see the regulator reduce the volume of purchases, but extend the overall duration of the program. So, will this be good or bad for the euro? I think it best not to overthink this question. We should just play it as it comes.
Day’s news (GMT+3):
- 02:50 Japan: adjusted merchandise trade balance (Sep), foreign bond investment (13 Oct);
- 03:30 Australia: unemployment change (Sep), unemployment rate (Sep), NAB business confidence (Q3);
- 05:00 China – retail sales (Sep), industrial production (Sep), GDP (Q3);
- 07:30 Japan: all industry activity index (Aug);
- 09:00 Switzerland: trade balance (Sep);
- 11:30 UK: retail sales (Sep);
- 15:30 USA: initial jobless claims (13 Oct), Philly Fed manufacturing survey (Oct).
Fig 1. EURUSD rate on the hourly. Source: TradingView
The euro/dollar rate ricocheted from 1.1730 to 1.1817. The surge gathered pace after a breakout of the A-A channel and the 1.1781 top. I wrote yesterday that the H6 and H8 timeframes suggested the euro would strengthen against the dollar, while the H3 and H4 timeframe suggested the opposite. In the end, the price went down, and then traders started opening long positions.
The 67th degree provided some resistance. Accounting for the upwards movement from 1.1730, I reckon that when the European session opens, buyers will try to push the price up to 1.1830 to induce a reversal.
I’ve got two 45th degrees on my chart today. The first is at 1.1763 and the other at 1.1779. If the rate opens down in Europe without renewing the maximum, the target will remain at 1.1763. If the price follows this forecast, then after hitting a new high at 1.1830, the rate will slide to 1.1779.
Yesterday’s bounce has created some doubts over whether the head and shoulders formation on the daily timeframe will be realised. For it to complete its formation, sellers need to return to 1.1779 as quickly as possible.
Today’s biggest outlier is the Kiwi dollar (-0.81%). It could drag some of the other majors down with it, including the euro. US 10Y bond yields are growing, which is a positive for the US dollar. The situation on the euro/pound cross is 50/50. At the time of writing, the euro is trading up against all the majors.