The EUR/USD pair rose above 1.1293 on Monday, which is the 23.6% Fib retracement of the larger down trend from 1.3991 (May 2014) to 1.0461 (March 2015). The pair now trades at 1.1339 after a weaker-than-expected April month ADP employment report in the US triggered a fresh sell-off in the US dollar.
The completion of the 23.6% Fib retracement is seen ahead of the US non-farm payrolls due on Friday, which is expected to show the US economy added 213K jobs in April compared to 126K additions seen in March.
The shared currency could be offered in case – The Non-farm payrolls report on Friday prints higher than expected. A strong data would support the Fed’s view that the job market remains robust despite of a economic slowdown in the first quarter. A better-than-expected US Non-farm payrolls data alone could push the pair back to 1.1050 levels. On the other hand, a weak print shall open doors for further rise to 1.1530-1.1670 levels.
The Greece issue can come back ahead of the Eurogroup meeting on Monday. Markets do not expect Greece to reach a deal with its international creditors, especially on reports of a disagreement between the IMF and EU over the conditions Greece needs to meet to receive its next bailout payment. Whether or not the EUR weakens on Greece issue depends on German and Greek bond yields. The EUR could be offered in case we see a spike in Greek yields accompanied by a drop in the German bond yields. Otherwise, the single currency is likely to ignore the Greece issue.
The EUR could also benefit from cross demand in EUR/GBP pair in case we have a messy result of the general elections in the UK scheduled May 7. However, a sharp drop in the GBP/USD due to political uncertainty could also pull the EUR/USD pair lower. Hence, the EUR may not gain much of the buying in the EUR/GBP cross.
By no means a drop from the current level of 1.1350 would mean the pair has resumed its journey towards parity. The markets are still excessively short on the EUR, thus, the pair is likely to rally on every dismal piece of economic data out of the US.
The German 10-year yield has rallied more than 50 basis points since in just two weeks, and thus appear due for correction. The yield could drop back to 0.40% from the current level of 0.568%, thereby pushing the EUR/USD pair back to 1.1050 as markets once again grapple with the Greece issue.
On the weekly charts, we see the pair currently trades above 1.1293 (23.6% Fib Retr of 1.3991-1.0461). On the daily chart, a daily close above 1.1293 could open doors for a re-test of 1.1380 and multiple resistance levels around 1.1440-1.1450. On the other hand, a failure to sustain above the same sent he pair lower to its 100-DMA at 1.1089.
On a 4-hour chart, there is a strong possibility of the pair forming bearish divergence with the RSI. On hourly as well as 4-hour chart, the RSI has hit the overbought region, which increases the probability of a correction in the pair.
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