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Euro: USD/EUR (EUR=X) has made some modest gains

Euro: USD/EUR (EUR=X) has made some modest gains

Despite a relatively quiet macro data and event schedule yesterday, we did some action on currency markets. This was mostly in the form of the euro spending much of the day on a gradual upward trajectory.

The gains for the euro over the past 24 hours are reflected in EUR/USD opening this morning up at the midpoint of $1.08-1.09. At the same time, the EUR/GBP pair has regained the 88p level.

Meanwhile, a slightly softer sterling tone sees GBP/USD struggling
to hold the $1.23 threshold.

Elsewhere, the performance of equity markets showed that investor sentiment remains vulnerable against the backdrop of ongoing uncertainty related to the Covid-19 crisis. At the closing bell on Wall Street last night, the S&P 500 was down 2%.

Data-wise, this morning we have already had the release of the first estimate of UK GDP for Q1. The economy contracted by 2% q/q (f’cast for 2.5%), reflecting the initial impact of the Covid-19 lockdown at end March.

Indeed, the monthly figure for March showed a 5.8% decline. There has been no major immediate reaction from sterling to this macro newsflow.

Ahead today, the only other data release of any note is the March print of Eurozone industrial production, but no major euro impact is anticipated. In the US, a speech by Fed Chair Powell will pose event risk for the dollar.

Recent dire US macro data have seen futures contracts move to price in the possibility of negative rates in the US. Market participants will be looking for insight into Powell’s view on this. Already this week a number of Fed speakers have played down the prospect of negative rates.

FX Polls

Economic Events

Shayne Heffernan Trade Idea

“If we can break down below the 1.0750 level, then the market is likely to go down to the 1.0650 level. At this point, the market then has to make a decision as to whether or not it is going to make a move to the 1.05 handle. Breaking down below there would collapse the Euro completely, and things could get rather ugly. Quite frankly, the Euro breaking down below the 1.05 level could open up the door to the 0.80 level based upon the previous basket of currencies being waited the same way before the Euro era. To the upside, I am not interested in buying until we break above the 200 day EMA at the very least, which is currently just above the 1.10 level.” Shayne Heffernan PhD in Economics

Why This Matters

There are a few things to be mindful of when looking at the technical outlook for EUR/USD.

First, the pair is trading at the lower bound of its recent range, coupled with a slowing of volatility. The decline in volatility paves the way for a bounce higher in a mean reversion type fashion.

Volatility in the pair has slowed ever since the stock markets hit a bottom in late March. During the same period, the pair has made multiple attempts to make a sustained break below the 1.0800 level which have all ended in a bounce back towards the 1.1000 handle or higher.

Another technical item to consider is a rising trendline that originates from the low in March. This trendline has been tested twice now since last week and buyers have dominated price action following both tests.

Unless there is a distinct change in the fundamental backdrop for EUR/USD, a return to the 1.1000 area appears probable in light of recent price action.

Technical Indicators

Overall, the bias in prices is: Downwards.

The projected upper bound is: 1.10.

The projected lower bound is: 1.06.

The projected closing price is: 1.08.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 4 white candles and 6 black candles for a net of 2 black candles. During the past 50 bars, there have been 22 white candles and 28 black candles for a net of 6 black candles.

A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 43.2131. This is not an overbought or oversold reading. The last signal was a buy 4 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 44.75. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 47 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -77. This is not a topping or bottoming area. The last signal was a sell 7 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 3 period(s) ago.

Rex Takasugi – TD Profile

FOREX EUR= closed down -0.001 at 1.081. Volume was 76% below average (consolidating) and Bollinger Bands were 52% narrower than normal.

Open       High       Low         Close        Volume
1.082      1.082      1.081       1.081        24,191
Technical Outlook
Short Term:         Neutral
Intermediate Term:  Bearish
Long Term:          Bearish
Moving Averages: 10-period       50-period         200-period
Close:           1.08            1.09              1.10
Volatility:      7               14                8
Volume:          96,581          120,681           83,058

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

FOREX EUR= is currently 1.9% below its 200-period moving average and is in an downward trend. Volatility is extremely low when compared to the average volatility over the last 10 periods. There is a good possibility that there will be an increase in volatility along with sharp price fluctuations in the near future.

Our volume indicators reflect volume flowing into and out of EUR= at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on EUR= and have had this outlook for the last 0 periods.

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