Trading on the euro on Wednesday closed slightly up. After a fall to 1.0641, the rate restored to 1.0714. This strengthening was facilitated by a fall in US bond yields. Yields from 10-year bonds fell from 2.3866 to 2.3267 (-2.5%).
Europe's and the US' economic calendars are bare today. However, there will be several speeches, although the only one likely to have much influence is Bank of England governor Mark Carney's. So, for Thursday, the direction of major currencies will hinge on the US debt market.
In Asia, yields for 10-year US bonds are down slightly, and so the EUR/USD rate is consolidating at around 1.0689 having fallen from a high of 1.0714.
Eurobulls yesterday left a long shadow on the daily candlestick, which is indicative of continued growth for the EUR/USD pair. My forecast is showing a breakthrough of the TR2 trend line with subsequent growth up to 1.0726. If activity from buyers is high, then I'm not ruling out a testing of the TR1 trend line at 1.0743. Following the formation of a hammer on Wednesday, the target is around the 1.0780 mark. For this bullish signal to be neutralised by buyers, they must close trading at around 1.0641.
Day's news (GMT+3):
- 9:45 Switzerland: unemployment rate (Jan);
- 10:00 Germany: trade balance (Dec);
- 12:00 Australia: RBA governor Philip Lowe's speech;
- 16:30 Canada: New Housing Price Index (Dec); USA: initial jobless claims (Feb 3);
- 17:10 USA: Fed's Bullard speech;
- 19:35 Canada: Bank of Canada deputy governor Shembri's speech;
- 21:10 USA: Fed's Evans speech;
- 21:30 UK: Bank of England governor Mark Carney's speech.
EURUSD rate on the hourly. Source: TradingView
Intraday forecast: low: 1.0678, high: 1.0726, close: 1.0707.
Yesterday's predictions for the euro came off in full. On the back of a fall in US bond yields, the euro restored from 1.0641 to 1.0714.
Now, on the 7th of February, the euro broke through the trend line. With this breakthrough, the bears have paved the way to a range of 1.0583 - 1.0600. Demand for US bonds halted the euro's slide at 1.0641. By the end of the day, a hammer had formed with a target of around 1.0780. So, what will happen to the euro now?
On the one hand, traders are exposed to political risks in the run-up to the French presidential elections. On the other, Donald Trump is trying to weaken the dollar with his verbal assaults. In this situation, the only trends worth discussion are sideways ones. The euro remains within a range of 1.0340 - 1.0873, where it will stay at least until the end of March this year.
There is an intermediate support level at 1.0678. Before markets open in Europe, the rate should ideally stay at around this level. In such a case, there is a high probability of the TR2 trend line being broken at the first attempt and the rate should reach 1.0726 (projected from a line drawn between the tops 1.0706 and 1.0714). If there is high buyer activity in Europe, I'm not ruling out the TR1 trend line (at 1.0743) being tested. From here, buyers will have to try to restore the rate to around 1.0695 in order to form an inverted hammer by the end of the day, thereby securing a range on the shadow of 1.0641 - 1.0743.