Yesterday’s Trading:

Falls in the stock and oil markets again offered support to the euro and yen. Brent fell to $30.26 and the euro/dollar fell to 1.1337. When the US indices stopped falling, a rally on the euro began: the euro weakened against the dollar to 1.1280.

Oil fell after the IEA (International Energy Agency) published a report in which the media saw the agency’s view as sceptical. “With the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term,” it noted.

Oil is trading at around $31 on Wednesday. The growth is 0.85% which isn’t much, but enough to stop the European indices from falling.

Main news of the day (EET):

• 11:30, UK industrial production and production in the manufacturing sector for December;
• 17:00, UK GDP from NIESR for January;
• 17:00, Yellen speaks;
• 17:30, US Ministry for Energy oil reserve figures.

Market Expectations:

Market participant attention on Wednesday will be on Janet Yellen’s two-day speech before the banking committees of the Senate and the House of Representatives. Many expect her words to be neutral and not cause a spike of volatility on the financial markets. We expect to see a fall of the euro to 1.1256 before the US session opens. I’ve not taken Yellen’s speech into account in my forecast.

Technical Analysis:

• Intraday target maximum: 1.1311 (current Asian), minimum: 1.1256, close: 1.1295;
• Intraday volatility for last 10 weeks: 102 points (4 figures).

In the first half of Wednesday I expect the euro to fall to the LB at 1.1256. Brent is trading up (+0.85%). The euro/pound is at the upper limit of the MA channel. The conditions are ripe for a correction.

Traders are used to the daily fall of the stock indices so I reckon that the indices will switch into a growth at market opening (a correction). This will have a negative effect on the euro. The US oil reserve report from the Ministry for Energy is out this evening. If Brent holds above $30, it’s likely the euro/dollar will begin a downward correction.