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EURUSD: euro awaits new drivers

The EURUSD pair eased 0.03% to 1.2209 on Wednesday, June 2. During the European session, the price action dropped to 1.2164. The single currency came under pressure following the release of May retail sales out of Germany. The 10-year Treasury yield, which fell to 1.586%, cushioned the euro from decline. The bulls have shrugged off this decrease since Tuesday's North American session (knee-jerk effect).

Today’s macro agenda (GMT+3)

  • 10:50 to 11:30 services sector PMIs out of France, Germany, Eurozone, and the UK (May)
  • 15:15 US: ADP employment change (May)
  • 15:30 US: weekly initial jobless claims, non-farm productivity (Q1)
  • 16:45 US: Markit services PMI (May); 17:00 ISM non-manufacturing PMI (May)
  • 17:30 US: EIA weekly petroleum status report
  • 19:00 UK: BoE Governor Andrew Bailey speech
1

Current outlook

On Wednesday, the bulls pumped up the price action to 1.2218 from 1.2164. The gains halted at the 45-degree angle of the Gann fan. At the time of writing, the single currency was trading at 1.2194. The 10-year Treasury yield stood at 1.591%. There is room for decline, but the upcoming NFP report, which will be released on Friday, adds uncertainty. Traders should wait for it before taking any action. Without that key data point, the price action is unlikely to deviate far from the balance line (55-day SMA).

All major currencies are now trading in the red. The euro is showing the smallest losses, as it is drawing support from the EURGBP cross. There is a chance the pair could shoot up to 0.8635.

The hourly TF shows an interesting pattern. Yesterday's spike is similar to the one seen on May 28. On the daily TF, we can see long lower shadows (bullish candlestick setups). The price range was 63 pips on June 2, and 80 pips on May 28. If the 10-year Treasury yield continues to retrace to lows ahead of the NFP release, the odds are strong that we could see a breakout of the pattern that shaped up on May 31. The pattern does not offer a 100% guarantee of a move higher, but the chances of a leg up to 1.2245 are high.

As for today’s highlights, we note the services sector PMIs out of European countries, the ADP report, as well as the Markit services PMI for May stateside.

Bottom line: Bullish patterns formed on May 28 and June 2 amid a decline in the 10-year Treasury yield. US10Y yields show room for decline. Uncertainty is added by the US employment market report due out on Friday. It makes sense for traders to wait for it before taking any action. In case of a breakout, we expect the euro to reach 1.2245. If the pattern is unsuccessfully completed, the price action will retrace to 1.2075. The focus today will be on the US services sector PMI for May.

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