The common currency currently trades at 1.2240 against the dollar, representing a positive start to the week. We would be concerned if EURSUD could not push and hold above 1.2250 over the next day or two. Traders may need to see how the US GDP data dollar plays out before chasing a move in EURUSD.
USDX:
Either we will make a double bottom around 89 level or re-testing Feb 2018 low at 88 followed by 86.90 its 200MA-Monthly. The dollar index is down a percent month-to-date. Whereas, during the same time frame, the EURUSD rallies 1.90%. Looking ahead, though US dollar weakness continues, we expect USD to find a floor between 89 and 87. If you are dollar bulls, USDJPY should be the place you have to focus on. Flipside if you are a EUR bull, EURCHF would offer a better risk-reward.
Bonds:
The 10year yield down two bps and closed at 1.61%, the lowest level since 06 May. Besides, the Germany 10 Years Government Bond has a -0.141% yield.
“European rates are finding themselves in a fragile limbo with inflation and ECB at the center of the equation,” according to Danske Bank.
Positioning:
ING cited “A pause in USD speculative selling.” In its latest FX positioning report, ING highlighted that “Rise in USD shorts stops.”
“CFTC data for the week ending 18 May 2021 showed the aggregate dollar positioning was unchanged (at -6% of open interest) after four weeks of consecutive increases in net-short positions. That was broadly in line with the moves in the spot market, where the dollar rallied after the upside surprise in April’s US CPI on 12 June but then came under pressure again at the beginning of the following week.”
The above table reveals the EUR/USD long positions still enjoying 14% of open interest.
Data review:
Services PMI on both sides of the Atlantic printed positive as lockdown restrictions ease. Our subject currency, the euro shown a slight reaction to the upbeat Services PMI data.
“The US continued to drive the global economic rebound in May. Europe also saw growth accelerate.” IHS Markit reported.
Eurozone business activity grew rapidly in May as economies continued to open up from virus restrictions. The expansion rate hit the highest for over three years as new order inflows surged to an extent not seen for almost 15 years.
The latest Q1 GDP pointed out a contraction of -0.6%, in line with expectations.
Looking ahead, data-wise, it will be a quiet week, but we look for GermanIfo (Tue), and we also look for any clues from ECB’s Villeroy speech.
TECHNICAL OVERVIEW
The weekly technical landscape has not changed since last week. On the upside, the trend is supportive, but the market needs to take out the recent high at 1.2250 to confirm the trend once again.
The price action is exhibiting higher lows and higher highs for the past three weeks and now approaching the near-term resistance zone at 1.2250. The daily relative strength index has been moving sideways, whereas the oscillator underneath remaining a bullish crossover. Under these settings, keep an eye on the multi-resistance level located at 1.2250. A decisive breakout above 1.2250 on a closing basis may cause strength towards the early Jan 2021 high and 1.2450 per the A-B-C weekly pattern.
Levels to watch:
It is important to always keep in mind the risks involved in trading with leveraged instruments.
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