On Monday the 4th of June, trading on the euro closed up. Australian data brought with it a wave of bullish optimism. American traders then tamed the bulls to bring the rate back down from 1.1744 to 1.1677 (-67 pips). The US dollar shot up on the back of a rise in US10Y bond yields.
Day’s news (GMT 3):
- 10:15 Spain: Markit services PMI (May).
- 10:45 Italy: Markit services PMI (May).
- 10:50 France: Markit services PMI (May).
- 10:55 Germany: Markit services PMI (May).
- 11:00 Eurozone: Markit services PMI (May).
- 11:30 UK: Markit services PMI (May).
- 12:00 Eurozone: retail sales (Apr).
- 15:30 Canada: labour productivity (Q1).
- 16:45 USA: Markit services PMI (May).
- 17:00 USA: ISM non-manufacturing PMI (May).
- 23:30 USA: API weekly crude oil stock.
Fig 1. EURUSD hourly chart. Source: TradingView
The market moved according to its own plan on Monday. I was expecting trading to be flat at around 1.1680 until Tuesday. The rate shot upwards instead, although trading did close around the balance line below 1.17.
The return of the exchange rate to the balance line on the hourly timeframe confirmed the breakout of the trend line as false. On the current hour, the trend line runs through 1.1731.
I’ve detailed two different outcomes on today’s chart because, owing to the uncertainty surrounding the euro crosses, I couldn’t settle on just one.
1) From a technical point of view, this is the ideal place for buying euros. The pair is trading around the trend line, which is drawn through the lows of 1.1519 and 1.1618. The stochastic, which is down, has reversed upwards. Everything here looks excellent in theory.
2) Euro to rise after a drop to 1.1663. There are a few reasons for this; the euro crosses are declining, the dollar is rising in Asia, and an intraday reversal model formed on Monday.
Because of this, the downside risk of breaking through the trend line and dropping to 1.1663 has increased. It could even drop as far as 1.1636. Here, we need to keep an eye on the general sentiment among traders as well as at the dynamics of US bond yields.
Mario Draghi was supposed to give a speech today, but I read that it’s been cancelled. I’d just like to remind you that his speeches have a marked impact on markets in the press conferences that follow ECB meetings.