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EURUSD: euro firms on declining UST yields

Heading into the weekend, major currencies showed gains, except for the aussie and kiwi dollars. The steepest gain against the USD was shown by the Swiss franc (+0.39%). Other outperforming currencies included the Japanese yen (+0.40%), sterling (+0.37%), the euro (+0.30%), and the Canadian dollar, which ended the week 0.29% higher. On the other side of the spectrum, the New Zealand dollar lost 1.16% and the Australian dollar shed 0.70%.

The EURUSD pair fell 0.38% to 1.2181 on Friday, May 21. The pair declined in the absence of market-making news. The DXY’s rise due to a strong manufacturing PMI stateside looks unconvincing, in our view. News agencies pushed this single positive US data point as the main reason for the uptick in demand for risk-sensitive assets, and the other as a factor driving the dollar upward due to a recovery of the US economy. This balancing act apparently played into the hands of media outlets, which interpret such stats to keep the crowd moving in the right direction for their sponsors.

Today’s macro agenda (GMT+3)

  • 16:30 US: Chicago Fed national activity index (April)
  • 17:30 UK: Speeches by BoE Governor Andrey Bailey, BoE Deputy Governor for Financial Stability John Cunliff, BoE MPC member Andy Haldane, BoE MPC member Michael Saunders
  • 19:00 US: Fed member Raphael Bostic speech

Current outlook

The euro jumped to 1.2195 during today’s Asian trading session. The euro strengthening phase began with a drop in the US10Y. The active phase of growth in cycles falls on Wednesday. On Wednesday, the RBZN meeting may act as a trigger for dollar depreciation.

The US10Y yield is a key drive for EURUSD. If the yield drops to 1.59% from 1.62%, we can expect to see the pair retrace recent highs. Euro crosses currently show a buy side bias. When moving north, the resistance levels are: 1.2200 (55-day SMA), 1.2215 (3) and 1.2230 (2). Support is at 1.2163. To neutralize the bearish double top pattern on the hourly chart, the key pair will need to trade flat for a couple of days in the 1.2160-1.2200 range.

Players should watch for the following macro releases due out this week: 1Q German and US GDP readings, Germany’s PMIs IFO, as well as US CCI.


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