EURUSD: buyers taking a wait-and-see approach
The closer the snap election in the UK (8 June) and the FOMC meeting (14 June) get, the harder it is to predict the behaviour of market participants and prices. Election surveys, US and European bond yields, stock index dynamics and an appetite for risk are all having an effect on the dynamics of currency pairs. Everything is changing so quickly that traders are turning a blind eye to weak statistics.
A YouGov projection showed yesterday that the ruling Conservative party could fall 16 seats short of the 326 required for a parliamentary majority. On the other hand, a survey conducted by Kantar shows a widening gap between the two major parties. In the first half of the day, the pound fell against the US dollar by 90 pips. In the second half, it grew by 150 pips. Buyers received some extra impetus from a fall in US bond yields.
Correspondingly, the EUR/USD pair continued its rally. The price first broke out of the 7-day channel at 1.1192 level before going on to break through the trend line at 1.1217 level thanks to a slip in US bond yields.
The release of macro-economic statistics in the US didn't manage to provide any support for the dollar. The Chicago PMI fell to 55.2, while pending home sales recorded a fall of 1.3%.
At the time of writing, the Euro is trading at 1.1243 USD. On Wednesday, growth on our pair stalled at around 1,1252 level. Buyers renewed to maximum in Asia to 1.1257. The last 14 hours have shown a sideways trend, with the pair trading within a 22-pip range. I've decided not to make a forecast for now, as I want to see what happens when trading opens in London. Asian traders are trying to continue the rally, but this has been unsuccessful so far due to a lack of trading volume.
An ADP employment report is set to be published in the US today, along with an ISM manufacturing report and a jobs report for May. These are important reports in the wake of Friday's payrolls.
Day's news (GMT+3):
- 08:45 Switzerland - GDP (Q1);
- 09:00 UK: Nationwide housing prices (May);
- 09:30 Australia: RBA commodity index SDR (May);
- 10:15 Switzerland: retail sales (Apr);
- 10:30 Switzerland: SVME PMI (May);
- 10:55 Germany: Markit manufacturing PMI (May);
- 11:00 Eurozone: Markit manufacturing PMI (May);
- 11:30 UK: Markit manufacturing PMI (May);
- 14:30 USA: Challenger job cuts (May);
- 15:15 USA: ADP employment change (May);
- 15:30 USA: continuing jobless claims (19 May), initial jobless claims (26 May);
- 16:30 Canada: Markit manufacturing PMI (May);
- 16:45 USA: Markit manufacturing PMI (May);
- 17:00 USA: ISM manufacturing PMI (May);
- 18:00 USA: EIA crude oil stocks change (26 May).
Intraday forecast: low: n/a, high: n/a, close: n/a.
What can we say about the current situation? First of all, the rate has exited the channel in which it was trading for the previous 7 days. Secondly, there's been a breakout of the trend line of the downwards correctional movement from 1.1268. Thirdly, a bearish divergence has appeared between the price and the AO and CCI indicators since the maximum was renewed in Asia.
The price is currently in an upwards/sideways trend at the 112th degree. The lower boundary of the outset is runs through 1.1234 level. The trend line runs through 1.1218, which takes its starting point from the 1.1109 low.
We could see the start of a downwards correction somewhere between the 112th and 135th degrees. However, as long as the price is above the trend line, vigilant buyers will quickly buy out any reversal. The pound is now dropping steadily. The growth on the EUR/GBP cross is smoothing out the dynamics of the EUR/USD pair. US 10Y bond yields are growing, but the current growth represents an upwards correction and they could recommence their slide when the European session opens. If the flat is delayed, without breaking through any boundaries, we may have to wait for the release of US statistics. In the wake of Friday's payrolls, this should signal to the Euro-bulls whether or not to close their long positions.