EUR/USD: 1.10 or 1.15?

The EUR/USD pair turned lower to 1.1080 levels after ECB’s Draghi, in his press conference, said the bank was expecting higher growth numbers. However, the losses were erased quickly and the pair rose to an intraday high of 1.1235 after Draghi said yields could move higher on higher inflation and growth numbers.

At present the currency pair is trading in the band of 1.11200-1.1210 levels. With the ECB out of the way, the next key events for the week are Greece loan payment to the IMF on June 5, followed by US monthly non-farm payrolls figure on the same day.

The question now is whether the pair could extend gains to 1.15 levels or fall back to 1.10 levels in the short-term. At the moment, a sell-off in the EUR/USD to 1.10 levels appears possible only in the case of Greece missing its June 5 payment and does not get an extension from the IMF and its international creditors. A better-than-expected non-farm payrolls in the US on Friday could also hurt the pair, although, the data by itself may not be able to push the pair below critical technical supports between 1.1050-1.1080.

Scope for German yields to rise further

The doors are officially open for the German 10-year bund yield could rise further. The ECB President expressly stated today that the policymakers are not concerned about the volatility in the bond markets and that the yields are likely to move higher on improving inflation and growth numbers.

Moreover, the German yield curve has improved – bonds up to 3 year maturity have negative yields as compared to negative yields on 8-year bond a month earlier. The 1-year bonds have almost qualified to be a part of the ECB’s QE program (yield at -0.21%, ECB deposite rate -0.20%). Consequently, the odds are in favour the EUR/USD pair extending gains to 1.15 levels.

Markets anticipate a temporary solution to Greece issue

At present, the markets are not worried about the Greek deal saga. Moreover, most of the traditional safe haven assets hardly reacted to the ongoing Greece issue, which says a temporary solution is expected. A last minute “kick the can down the road” deal is expected by Friday. Hence, the EUR could extend gains towards 1.14 levels.

Risk of a strong US Non-farm payrolls

The pair could come under pressure in case of a better-than-expected US non-farm payrolls report in the US. The markets are expecting the NFP report to show the US economy added 225K jobs in May. A better-than-expected print could push the pair lower by 100-150 pips. However, at present, it appears that even a better-than-expected data may not be able to push the pair below the support zone of 1.1050-1.1080.

This means, a sharp sell-off in the EUR/USD could be seen only if the Greece issue somehow flares up. In such a case, the first indication would be - Fall in German yields and sharp rise in periphery bond yields

EUR/USD – Break above 1.1190 is bullish

• The hourly chart shows, a break above 1.1190, which is the inverted head and shoulder neckline level. Consequently, we have an upside technical target of 1.1563.

• The latest cyclical high stands at 1.1465. A strong upside momentum could ensure the rally gets extended to the psychological level of 1.15 levels.

• A Fib expansion of 1.0817-1.1004-1.0885, shows immediate resistance at 1.1256 (200% Fib expansion). A daily close above the same open doors for 1.1312 (76.4% Fib R of 1.1465-1.0817).

• However, as per technical studies, the pair could extend gains to 1.15 only in case of a daily close above 1.1293 (23.6% Fib R of 1.3991-1.0461).

• Meanwhile, on the downside, only a daily close below 1.1190 could being in fresh offers and push the pair down to 1.1132.