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EURUSD: correction on the back of a rise in US bond yields

Previous:

On Friday, trading on the Euro closed up. Before the US labour report was published, our pair was trading at 1.1217 level. After the news, the Euro appreciated to 1.1282.

The US created 138,000 new nonfarm jobs in May against a forecast of 185,000. The value for April was revised downwards from 211,000 to 174,000 and the figure for March was revised from 79,000 to 50,000. The aggregate revision come to -66,000 new jobs.

Unemployment fell to 4.3% (forecast: 4.4%, previous reading: 4.4%). Average hourly earnings grew by 0.2% MoM, which was in line with market expectations. The previous figure has been revised from 0.3% to 0.2%. The participation rate fell from 62.9% to 62.7% last month.

Currency market participants are taking note of how bonds are reacting to the news. US 10Y bond yields have fallen from 2.91% to 2.144% per annum. Still, according to CME Group's FedWatch, the NFP report hasn't changed the probability of a rate hike in June, which remains 94.6%. Low unemployment won't stop the Fed from raising interest rates this month.

Market expectations:

On Friday, the news helped the Euro renew its maximum against the greenback. Euro bulls managed to push the 26th of May's maximum of 1.1268 to 1.1285. In Asia, US bond yields are trading up by 0.56%. The Euro/dollar has corrected to 1.1262. I'm expecting to see this correction extend to the balance line lb at 1.1240. Buyers have nothing to fear at the moment. As long as the price is above 1.12, they will be active on the market.

From the news coming out of Europe, it's worth taking note of the UK's services PMI figures. The UK PMI indices have a strong influence on the GBP/USD and EUR/GBP pairs, so it's probably better not to make any trading decisions until these reports come out later today.

Day's news (GM 3):

  • 10:55 Germany: Markit services PMI (May);
  • 11:00 Eurozone: Markit services PMI (May);
  • 11:30 UK: Markit services PMI (May);
  • 15:30 USA: nonfarm productivity (Q1), unit labour costs (Q1);
  • 16:45 USA: Markit services PMI (May);
  • 17:00 USA: ISM non-manufacturing PMI (May), factory orders (Apr), labour market conditions index (May).

EURUSD rate on the hourly. Source: TradingView

Intraday forecast: low: 1.1238, high: 1.1283, close: 1.1256.

Developments in the news have pushed the Euro up by 67 degrees. Considering the payrolls, the Euro's jump of 77 pips or 0.69% isn't particularly big. On the news of weak data, Euro bulls could have driven the exchange rate up to 1.1335 level, but this didn't happen. The upcoming British parliamentary elections as well as futures options for June set to expire on the 9th are limiting bullish activity.

The single currency is still on the bullish trend started at 1.0569, but after Friday's payrolls, I'm expecting to see some correctional movement today. If the rate doesn't fall below 1.1250 and closes above this level, then on Tuesday we can expect a breakout of 1.13. Should the indicators unload with the trend, the possibility of bearish divergences will disappear, so keep that in mind.

If the day closes at around 1,1235, this will signal an increase in bearish sentiment. Should Friday's gains be erased, this would point towards a reversal given that this would form a bearish engulfing pattern on the daily timeframe. And now we keep an eye on how the Euro will fall. If sluggish, there will be a buy opportunity at the trend line. If the slide is fast, it'll be better to take a wait-and-see attitude and not rush into anything.



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