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EURUSD: dollar bulls push for reversal

The EURUSD pair ticked down 0.09% to 1.2213 on Tuesday, June 1 amid narrow rangebound trading. During the session, the euro rose to three intraday highs. The gains were sparked by upbeat UK and European macro releases. The price action rallied to 1.2254, with the pair drawing support from crosses.

Sterling came under pressure after the UK manufacturing PMI came out, as the May reading fell short of expectations and was down from the previous reading. Conversely, PMIs out of Germany and the Eurozone turned out better than expected. Eventually, euro gains were repulsed by the robust ISM PMI reading, a key gauge of business activity stateside.

The May manufacturing PMI jumped to 61.2, up from 60.7 in April (vs. 60.9 expected). The increase in the main index reflected higher growth of new orders. The new orders index climbed to 67.0 in May from 64.3 in April. However, the report showed that the manufacturing index fell to 58.5 in May from 62.5 in April, pointing to a slowdown in growth. The employment index slipped to 50.9 from 55.1 in April. The main index rose, whereas the situation in the sub-indices looked ambiguous.

Today’s macro agenda (GMT+3)

  • 12:30 UK: M4 money supply, mortgage lending and net lending to individuals (April)
  • 12:00 Eurozone: PPI (April)
  • 15:30 Canada: building permits (April)
  • 20:10 ECB President Christine Lagarde speech
  • 21:00 US: Fed Beige Book
1

Current outlook

The euro dropped from 1.2251 to the balance line. At the time of writing, the euro was trading at 1.2208. Yesterday, the euro moved higher on the back of rising US Treasury yields (US10Y), but reversed to the downside by the close. Today, the 10-year Treasury yield is in decline, and the euro is falling in tandem. The EURGBP cross has entered a correction, exerting additional pressure on the main pair. If the fall in US10Y intensifies during European trading, major currencies will reverse upward. This could happen if the yield slips below 1.60%.

As for today’s highlights, we advise FX market players to tune into ECB President Christine Lagarde’s speech. She will not likely say anything new, but the event will still constrain the activity of market participants.

Support is at 1.2198 (45-degree angle, 3). The projection line (4) from lows passes through the 1.2193 level. It strengthens at the 45-degree angle. If the bulls hold this level, an upward move can be expected with targets at 1.2250 (2) and 1.2272 (1). But if the bulls give up without a fight, the single currency will slide to 1.2172 (67-degree angle).

Bottom line: the euro closed lower on Tuesday and remains on the back foot against the greenback in Asian trading amid a decline in Treasury yields. Support is at 1.2198 (45-degree angle). If the bulls manage to hold this level, we can expect an upward move with targets at 1.2250 (2) and 1.2272 (1). If they surrender without a fight, the euro will fall to 1.2172 (67-degree angle). The European news flow is a blank slate. However, a speech by ECB President Christine Lagarde at 17:10 GMT, might stoke some market volatility.

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