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The euro closed slightly up after trading on Monday. The single currency appreciated against the dollar to 1.0631 following a rise on the EUR/GBP cross and increased 10-year German bond yields.
The pair then reversed downwards due to a sharp rise in 10-year US bond yields and a subsequent fall in their German equivalent. The debt market reacted to comments by the Dallas Fed’s president Kaplan, who suggested it would be better to raise interest rates sooner rather than later. Trading in Asia today has seen the EUR/USD rate fall from 1.0631 to 1.0565 (-66 pips).
Market expectations:
According to CME Group FedWatch Tool, the probabilities of a rate hike have increased from 26.6% to 33.2%, from 51.7% to 54.7% and from 69.6% to 71.4% for March, May and June respectively. Traders believe that the Fed will hold off on increasing rates in March, so all their focus is on Donald Trump’s address to Congress. He will discuss various topics in his address, including tax reform.
Today, there are no significant data releases that could have a profound effect on market prices. Trump will take centre stage at 00:00 EET and in my forecast, I’m envisaging a price restoration to 1.0630 at around this time. Considering that Trump has been complaining about a strong dollar, its current level is well-positioned as we await his address. If the hour closes lower than 1.0565, the case for growth is gone.
Day’s news (GMT+3):
- 11:00 Switzerland: KOF leading indicator (Feb);
- 16:30 Canada: Raw Material Price Index (Jan), Industrial Product Price (Jan);
- 16:30 USA: preliminary GDP change data (Q4), goods trade balance (Jan), personal consumption expenditure prices (Q4), wholesale inventories (Jan);
- 17:00 USA: S&P/Case-Shiller home price indices (Dec);
- 17:45 USA: Chicago Purchasing Managers’ Index (Feb);
- 18:00 USA: consumer confidence (Feb), Richmond Fed manufacturing index (Jan);
- 00:00 USA: Donald Trump to address Congress.
