The EUR/USD: Midweek Technical Analysis
The EUR/USD has pulled back to the trendline joining the tops of the previous range highs (see below) in what is known as a ‘throwback’ move following the piercing of the trendline on Tuesday.
This presents traders with an excellent opportunity to build long positions before the next expected rally higher.
Since the exchange rate has established itself above the trendline the throwback is unlikely to break lower and the probabilities now favour a maintenance above the line and extension higher.
The continuation is likely to extend a similar distance to the move immediately prior to the trendline break, which was from 1.0717 to 1.0787 – a move of roughly 70 basis points - this gives a target at about 1.0757, although the 200-day moving average at 1.0789 is also begging to be reached too.
Euro Releases
Data out this morning for the Eurozone showed the Current Account surplus shrank in February more-than-expected, to 24bn instead of the 28bn forecast and much lower than the 30bn in January.
https://www.ecb.europa.eu/press/pr/stats/bop/2017/html/bp170322.en.html
The main release for the single currency towards the back end of the week, however, is Purchasing Manager Indices, also known as PMI data for Manufacturing and Services in March.
This is released on Friday morning at 9.00 GMT. Although consensus estimates are for a marginal slowdown in growth, the opposite would be very bullish for the Euro.
Data for the Dollar
Major US data out this afternoon (Wednesday) includes Existing Home Sales at 14.00 GMT and Oil Inventories at 14.30.
Existing Home Sales in February are forecast to fall by -2.0% to 5.57m from 5.69m previously as credit conditions tighten.
With interest rates set to rise considerably in the medium to long-term the cost of lending will rise and may deter homebuyers.
The Existing Sales survey will be a useful metric to monitor this dynamic.
‘Housing leads the economy’, as the old adage says, so a decline could impact on the Dollar by reigning in exuberant interest rate expectations, although this remains unlikely this early in the business cycle.
Oil fell sharply last week following the overhang in US inventories and the same is in danger of happening again.
The big event on Thursday will be a speech by Federal Reserve Chair Janet Yellen, at 12.45, which investors will be scrutinizing for an update on the Fed’s stance, however, there is unlikely to be much change since the FOMC, so more downside is a possibility, due to the reinforcing of previous disappointment.
New Home Sales in February, at 14.00, meanwhile, are forecast to rise by 0.7% in February from 555k to 565k.
There is other Fed commentary too from Kashkari and Kaplan, at 16.30 and 23.00 respectively.
On Friday, March 24, at 12.30, Durable Goods Orders for February will be released, with 1.2% rise expected month-on-month and a lower 0.5% for Core Durable Goods. A big order for Boeing is expected to pump up the headline figure.
Manufacturing and Services sectors will come under inspection at 12.45 on Friday when the PMI surveys are released for March. They are expected to show a 6 basis point rise in Manufacturing and a four basis point rise in Services.
There is also more Fed commentary from Bullard at 12.05 and Dudley at 14.00, and by then some sort of consensus will be possible as to the general thinking of the FOMC on interest rates, which has the potential to upset market expectations, although given the proximity of the last meeting it is unlikely member’s stance will have shifted much since then.
