EUR/USD to track T-yields; watch out for the EUR / GBP cross

The short-term bearish reversal in EUR/USD seen earlier this week yielded another drop on Wednesday. The spot neared 1.0849 (38.2% Fib R of 1.0569-1.1021) before rising to 1.0880 in the Asian session today.

The Eurozone data docket is light today with just monthly economic bulletin scheduled for release. Hence, the spot is at the mercy of the action in the treasury yields.

The upward pressure on the Treasury yields could remain intact as markets prepare for a 25 basis point rate hike in June. As per the CME fed funds futures, the odds of a rate hike in June stand at 83.1%. This is well above the 70% mark that Fed usually wants to see before moving the rates.

Focus on EUR/GBP

EUR/GBP could witness big action and may have an impact on the EUR/USD if the Bank of England (BOE) delivers a hawkish/dovish surprise. Markets expect the central bank to hold rates unchanged and revert to a neutral stance from the recent hawkish tilt.

The EU is suddenly looking strong and stable, courtesy of fading political risks Consequently, a dovish turn by the BOE could divert fund flows to the Eurozone and lead to a cross driven strength in the EUR/USD.

EUR/USD Technical Levels

A break below 1.0849 (38.2% Fib R of 1.0569 - 1.1021) would open doors for 1.08 (zero levels) and 1.0777 levels (Apr 20 high). On the higher side, breach of 1.0915 (23.6% Fib R of 1.0569-.1021) could yield a revisit to 1.0951 (Apr 26 high) and 1.1021 (May 8 high).