This Coming Week for Euro / Dollar: Tables Turned on the Bears?
The EUR/USD is quoted at 1.0602 at the start of the new week, having shaved a little off the impressive gains made towards the end of the previous week when we saw the exchange rate make a remarkable recovery having risen up from 1.0505 to 1.0623 in just one day.
This seems to have turned the tables on Euro bears who had been pushing the exchange rate lower up until then.
The sudden surge means that from a technical standpoint we ought to now have doubts about the viability of the down-trend.
It is often the case that when the trend reverses it does so on explosive initial momentum – which fits what happened on Friday perfectly.
If we pan out to the weekly chart then we also get some further corroborating evidence that the uptrend may be about to get going.
Firstly there is a potent ‘tweezer bottom’ Japanese candlestick pattern formed by the two previous weeks.
This happens when at the end of a downtrending move you get two candlesticks which both have very similar lows.
They also tend to have quite long ‘wicks’, which means the range outside of the open and close, or the ‘real body’ as it is known.
Such a set up (see below) tends to be a strong reversal signal.
The one on EUR/USD is a high-grade example because the two lows are not just close to each other but are at the same level – 1.0492 – as each other.
In addition, the second week’s real body fully engulfs the first week’s body making it a Japanese 'bullish engulfing' pattern as well, adding further weight behind the bullish forecast.
Assuming the exchange rate can push above the monthly pivot (PP) at 1.0648 we see a strong possibility of a continuation higher to a target at the previous 1.0830 highs.
This Week's Agenda for the Euro
The main event for the Euro is the European Central Bank (ECB) rate meeting on Thursday, March 9 at 13.30.
It is expected to result in no-change in policy for whilst inflation has risen, prompting some to question whether the ECB is keeping monetary policy too loose, and although unemployment has fallen substantially, the ECB are unlikely to take any risks until after the French presidential election.
In addition, the high inflation has mainly been as a result of rising gasoline prices due to the rising price of oil. Core inflation has not been going up as aggressively.
The ECB meeting will include updated economic forecasts and a press meeting with Mario Draghi.
On the hard data front, there are some tier two releases in the coming week, in the form of German Factory Orders which are expected to decline by -2.7% more in January.
Then on Friday, there is the German Trade Balance which is forecast to moderate from 18.5bn to 18.1bn before.
Another key focus will be poll results for the French presidential election.
Recent polls have shown centrist Macron overtaking Le Pen and it this trend continues it could remove some of the pressure holding back the Euro.
"While populist parties have tapped into widespread voter disenchantment with politics and the European Union across Western Europe, we do not think they will be able to translate that into winning government and implementing their policies," says Tom Taylor, Head of International Economics at NAB in Sydney.
Financial markets seem to agree with that assessment – while the Euro has depreciated and bond rates have moved up in France and Italy, the changes are nothing like what a Euro-zone break-up would be expected to produce.
"Opinion polls show strong populist party support in some countries but it does not seem enough to get them over the line in France or the Netherlands. Italy is more of a worry but EU exit faces constitutional hurdles there and the populist vote in Germany is much lower," says Taylor.
Data for the Dollar in the week ending Mar 10
The main release for the US Dollar will be Non-Farm Payrolls at 13.30 GMT on Friday, March 10.
The consensus expectation is for 190k but investment bank TD Securities actually see this as slightly cautious, expecting a 205k result instead.
An above 200k forecast would send the Dollar higher as it would solidify March rate increase hopes from the Federal Reserve.
TD see the Unemployment rate falling from 4.8% to 4.7% in line with expectations.
The other main theme for the Dollar are rising market expectations the Fed will increase interest rates at their March 15 meeting.
Such a move would boost the Dollar by attracting my foreign capital to the US seeking higher interest returns.
