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EURUSD: UST yields drive up price action

The EURUSD pair closed with gains on Monday, May 24, up 0.27% to 1.2214. Strong buying was seen during the European session due to a sharp rise in the EURGBP pair. The euro also appreciated against the dollar as the yield on 10-year Treasuries slid to 1.594%. Today, the DXY is in decline again with bonds on the rise.

Today’s macro agenda (GMT+3)

  • 11:00 Germany: Ifo business climate, current assessment, business expectations (May)
  • 13:00 UK: CBI retail sales (May)
  • 17:00 US: consumer confidence and Fed Richmond manufacturing index (May), new home sales (April)

Current outlook

At the time of writing, the euro was trading at 1.2242. The price action rose to 1.2260 amid a decline in US10Y to 1.596%. Buying is expected to be heavy on Wednesday. In Asian trading, the euro bulls pushed the price out of the A-A channel (see chart below). The euro tops today’s FX leader board (+0.37%).

Euro crosses are trading in positive territory. If positive dynamics persist, we can expect to see a leg up to 1.2285 (projection from 1.2177 and 1.2245 tops), since the dollar index broke through the 89.65-89.70 support range. A close below that range today, means that the dollar is on its way to 88.95. 

At 8:00 GMT time, Germany is scheduled to release three IFO indices. Strong readings would strengthen the euro bulls’ positions against major currencies. However, if the data disappoints investors, upside momentum will slow due to cross pair decline. If the hourly candle falls and closes below 1.2238, it will send out a bearish signal.

Bottom line: the euro has retraced to recent highs, breaking out out of the A-A channel amid a drop in the 10YUST yield to 1.596%. Technical analysis of the US10Y yield portends bearish narrowing to 1.583%. The DXY index has broken through the 89.65-89.70 strong support level. If the price action closes below that range, the dollar will be heading towards 88.95. So at this point, the 1.2285-90 target looms large for the euro bulls.

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