EUR/USD Forecast: New week, new month, new falls? Why bears are ready to take over

Calm between the storms – bank holidays in the US and the UK allow the euro to recover from Friday's storm, but there are reasons to resume its falls. Money managers balanced their portfolios in erratic moves late last week, first sending the dollar up, then sharply down. 

Here is why EUR/USD could fall as the dust settles. First, the US economy is heating up – the Core Personal Consumption Expenditure (Core PCE), surged to 3.1% yearly.. The Federal Reserve prefers this inflation gauge over others, and an increase well above the bank's 2% target may raise concerns that price increases are more than "transitory." 

Another core figure is also pointing to an economy firing on all cylinders – Durable Goods Orders non-defence ex-air jumped by over 2% in April. This "core of the core" measure of investment is pointing to long-term expansion. 

On the other side of the pond, it seems that Europe's catch-up vaccination campaign is already priced into the euro. What about the potential damage from COVID-19 variants? While sterling has been grappling with concerns that its reopening may be delayed, the common currency has yet to price such a road bump. 

Later in the day, Germany releases its preliminary Consumer Price Index (CPI) estimate for May, which will likely show an increase of core inflation to 2.4% yearly. While that may alarm the country's hawks, it will also serve as a stark reminder that the old continent's price rises are well behind those in America. The European Central Bank is unlikely to tighten its policy anytime soon.

Another factor that may push the pair lower is subdued Chinese growth. The world's second-largest economy reported that its Manufacturing Purchasing Managers' Index hit 51 points in May, weaker than estimated. Worries about slower global growth could boost the safe-haven dollar. 

All in all, the currency pair has room to drift lower before a larger storm later this week. 

EUR/USD Technical Analysis

Momentum on the four-hour chart has turned lower and EUR/USD has failed to recapture the 50 Simple Moving Average (SMA) it lost last week. On the other hand, it managed to top the 100 SMA. 

Some support awaits at 1.21, which was a cushion last week. It is followed by 1.2160, then by 1.2130. 

Resistance is at the daily high of 1.2205, followed by 1.2245, the former triple top. Further above, 1.2266, May's peak, awaits bulls.