By Gabriel Ojimadu, Alpari
On Friday the 10th of November, trading on the euro/dollar pair closed slightly up. The US dollar showed some mixed dynamics against the majors before the weekend. It dropped against the pound and euro while rising against the rest.
The dollar came under pressure due to uncertainty over the US’s tax reform program. It received support, however, from growth in US 10Y bond yields. On Friday, the rate closed at 1.1663, with an intraday high of 1.1678 and a low of 1.1623.
Day’s news (GMT+3):
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- 12:00 Eurozone: ECB Vice President Vitor Constancio speech.
- 20:45 Japan: BoJ governor Kuroda speech.
- 22:00 USA: monthly budget statement (Oct).
Fig 1. EURUSD rate on the hourly. Source: TradingView
The euro opened down in Asia today. It dragged the pound down with it, which has lost 0.5% over fears that British Prime Minister Theresa May could resign. The Sunday Times reported yesterday that there are 40 Conservative MPs ready to sign a letter of no confidence in their leader. Many of them hold her personally responsible for the ongoing deadlock in Brexit negotiations.
Today’s economic calendar is empty, so traders will be focusing on US tax reform, Theresa May, US 10Y bond yields, and stock indices. The euro is a funding currency, so if global stock indices drop, the euro will strengthen significantly.
At the time of writing, the euro is trading at 1.1660. In my forecast, I expect the euro to drop to the 45thdegree at 1.1624. The more aggressive sellers are, the higher the likelihood of the price dropping below 1.1580 by the middle of the week. If, this Monday, we see the pair consolidate at around 1.1655 within a range of 30 – 40 pips, we should prepare for a breakout of the upper boundary of the A-A channel.
As far as I’m concerned, the head and shoulders model on the daily timeframe has failed, so I won’t be looking at it any more. The uncertainty over tax reform has changed sentiment towards the dollar.