Expect V-shaped Model From Euro

Yesterday’s Trading:

Yesterday was a volatile one. The euro/dollar first dropped to 1.1237 due to growth of the European stock indices. Then at 15:30 EET the euro renewed its minimum in response to the publication of the text of Fed chief Yellen’s report.

The text of the report was published an hour and a half before she made her speech. I think that it was done quietly in order to lessen tensions on the financial markets. A difficult task lay ahead of Yellen: she needed be soft enough with her words so as not to scare off market participants, but at the same time use strong enough words to show that the US economy is not in need of additional support. In the text there was nothing about interest rates, so the dollar’s growth was conservative.

Following the speech, at 17:00 EET Yellen answered questions from congressmen. As she responded the dollar fell along with the stock indices. By the end of the day, the euro had won back all of its losses against the dollar and the stock indices were in the minus zone.

Yellen was asked about negative interest rates, to which she replied that the Fed will not have to consider dropping rates into the negative.

Main news of the day (EET):

15:30, Canadian December housing price index and US initial unemployment benefit applications;

17:00, Yellen to speak.

Market Expectations:

Yellen is set to speak again today, but it’s not worth expecting high volatility like we saw yesterday. We’ve already had answers from Yellen. The calendar is empty, so the movements across key pairs will be set by movements on the stock indices.

Technical Analysis:

Intraday target maximum: 1.1319 (current Asian), minimum: 1.1230, close: 1.1270;

Intraday volatility for last 10 weeks: 102 points (4 figures).

I expect to see a V-shaped model from the euro on Thursday. Just as yesterday, but with less amplitude. There are concerns that the market will head in a different direction since the euro/pound is able to head straight for 0.7813 after yesterday’s 0.7712 bounce. I reckon we’ll see a strengthening of the euro against the pound via a bounce to 0.7736. Here we again need to see how the European stock markets open. If it’s with a growth then the euro/dollar will fall. If they open down then it will rise. An ideal situation would be one where we have movement along 1.1260 before Friday.