Euro-to-US Dollar; Tech Forecast, News and Events Over Next five Days

The Euro-to-US Dollar's short-term uptrend looks overstretched, but given there are no signs of reversal yet so it could go higher the Euro will need more good data to rally; the Dollar's progress depends on tax reform.

The Euro-to-Dollar exchange rate has risen quite strongly over the previous week and is now looking a little toppy, yet there are no signs of weakness yet so we remain cautiously bullish.

The pair is probably forming an abcd pattern, outlined on the four hour chart below.

Abcd's are composed of three waves, the initial a-b wave, which in this case is up, the second b-c wave which is a correction, and the final c-d up wave which is in the same direction as the first wave and of similar length; the whole pattern forms what looks like a zig-zag.

The chart pattern may have completed now as the c-d wave looks quite extended and has actually reached 61.8% of the length of a-b, which is the minimum length expected for a c-d.

If it has completed then the exchange rate will probably start correcting back down.

There is still a chance, however, that c-d may extend the same length as a-b, in which case it would be expected to reach to as high as 1.2030.

Although the pair is in a short-term uptrend, which is expected to continue given there are no signs of weakness from price action yet, the fact that the abcd may theoretically have finished introduces a bearish overtone.

We are therefore only cautiously bullish with a break above the 1.1945 highs probably leading to an extension to 1.2000 where the R2 monthly pivot is likely to provide an obstacle to further upside. 

Pivots are watched by traders as markers of the market trend. 

They often attract a lot of buying and selling and they tend to be voaltile battlegrounds between bulls and be

Data and Events for the Euro

The European growth story has kept fuelling the rise in the Euro and for the currency, to continue it may need fresh fuel in the week ahead from data releases.

The key releases are inflation and employment on Wednesday, November 26, which should show an uptick in headline inflation to 1.6% (from 1.4%) in November and Unemployment remaining at 8.9% in October.

This will be followed by Manufacturing data for November, out on Friday, December 1 at 9.30 GMT.

The already very strong October reading of 60.0 may be hard to beat and most economists are expecting November to show the same result.

Interestingly, BK Asset Management Managing Director Kathy Lien, sees a risk of the Euro weakening in the week ahead, as hopes continue to evaporate that the ECB will stop printing money, which has a diluting effect on the Euro.

Every official of the European Central Bank (ECB) who controls monetary policy has reasserted the current policy expectations that the presses will remain on, and she doesn't see them changing their stance anytime soon.

"Since the last monetary policy meeting, ECB officials have taken every opportunity to remind investors that they have no plans to change their policy outlook until late next year. This outlook view could lead to the euro's underperformance but EUR/USD positive sentiment needs to shift first," says Lien.

Data and Events for the Dollar

Progress on Tax reform could be the biggest mover of the Dollar in the week ahead.
if the reforms get approved it will probably be positive for the Dollar, as they are expected to increase growth, spending, inflation, and interest rates - with the last pushing up the Dollar.

Higher inflation leads to the Federal Reserve raising interest rates in order to bring inflation back down, and this increases the attractiveness of the US as a place for international investors to park their money; the higher inflows increase demand for the buck, which appreciates.  

But the going it not expected to be smooth for Tax reform legislation with its biggest test ahead and the voting of the bill through the Senate.

"It is unclear whether the Senate is ready to vote on the tax bill next week or if it will be pushed out further. While tax reform seems inevitable, the near term uncertainty will not be good for the currency," says BK Asset's Kathy Lien.

Speeches by Yellen and Powell may also be important. Yellen appears before the Joint Economic Committee while Powell before the Senate Banking Committee for his nominee hearing.

According to TD Securities, Powell's comments (Tuesday at 14.45 GMT) are only likely to move markets if he, "says should something unexpected or some Republicans surprise by hinting at opposition."

Yet TD see little chance of volatility from Yellen (Wednesday 15.00) Dudley (Tuesday 14.15) or Harker (Tuesday 15.15) who are all likely to, "stick to the gradualist script."

As far as hard data goes, the most significant release will be  Personal Consumption Expenditure (PCE), on Thursday, November 30 at 13.30, as it is the Federal Reserve's preferred gauge of inflation and influences their decision making on interest rates.

"Core PCE inflation should firm to 1.4% annually, reflecting a 0.2% m/m increase that is likely to underperform the previously-reported core CPI print," says TD Securities.

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