EUR/USD Forecast: Euro loses uptrend support, fear of the Fed and US data could send it lower

"(Don't Fear) The Reaper" – that 1970s song, included in any driving music collection – is now relevant for EUR/USD traders. The reaper is the Federal Reserve, which is tiptoeing towards tapering. Fear that the world's most powerful central bank would begin cutting down on its $120 billion/month bond buys is boosting the dollar. 

Randal Quarles, a Governor at the Fed, said that the bank could consider having a discussion on reducing purchases in one of the upcoming meetings if conditions improve. This subtlety echoes the Fed's meeting minutes released last week and was blended with the Fed's regular messages – inflation is transitory and the economy has a long way to go. The latter will come to a test.

Economists expect a minor upgrade of US first-quarter Gross Domestic Product growth from 6.4% to 6.5% in the second release. Without a major surprise in GDP, the focus will likely be the more recent Durable Goods Orders statistics for April, which are set to show a slower increase in investment. Low expectations mean that a minor upside surprise could boost the dollar. 

See US Durable Goods Orders April Preview: Jobs should equal spending

Weekly Unemployment Claims are forecast to extend their gradual decline and Pending Home Sales will also be of interest amid signs of cooling in the housing sector. 

Another factor supporting the greenback is end-of-month flows. As Monday, May 31, is a bank holiday in the US and the UK, money managers are adjusting their portfolios and this seems to benefit the greenback. 

Across the Atlantic, optimism about Europe's vaccine-led recovery seems to be priced into the euro while fears of the variant first identified in India are creeping in. France joined Germany in demanding quarantines from UK visitors, potentially hurting the rebound of the tourism sector. 

While the broader uptrend still remains intact, the end of May could see EUR/USD come under increased pressure. 

EUR/USD Technical Analysis

Euro/dollar has slipped under the uptrend support line that accompanied it since mid-May and also dropped under the 50 Simple Moving Average on the four-hour chart. While momentum remains positive the currency pair is holding above the 100 and 200 SMAs, bulls are losing some ground. 

Support awaits at the daily low of 1.2175, followed by 1.2155, 1.2105 and 1.2075. 

Some resistance is at 1.22, which is the daily high. It is then followed by the former triple top of 1.2245, and then by the May peak of 1.2266.