|

EUR/USD Forecast: Only a temporary calm between the summer storms

  • The EUR/USD is trading steadily in range after a few turbulent days.
  • All eyes are on the US Non-Farm Payrolls which carries few hints.
  • The technical picture remains bearish for the pair after exiting oversold territory.

The EUR/USD is trading in a narrow range around 1.1700 in a calm session, understandable and typical ahead of the US Non-Farm Payrolls. The American jobs report is expected to show a gain of 188,000 positions in May after a disappointing 164,000 rise in April. Wages carry expectations for an increase of 0.2% MoM and acceleration from 2.6% to 2.7% YoY. The Federal Reserve is set to raise interest rates in the upcoming June meeting, and it would take horrible figures to cause some second thoughts.

See the preview: Volatility coming, but no lasting effect expected

And as the title says, the volatility may not last for too long. Markets did not have time to digest the Italian political developments as trade issues grabbed the headlines. The US implemented the tariffs on steel and aluminum on Canada, Mexico, and the European Union. Angry responses came, and the EU is working on retaliatory tariffs which may kick in within 30 days.

The worsening trade relations, seen as a trade war, may weigh on global growth. For the EUR/USD, they could result in a fall of the pair as money flows into the relative safety of the US Dollar and away from the euro-zone. 

European politics

Returning to European politics, a new government is due to take the reigns later in the day. The 5-Star Movement, the League, and Italy's President Sergio Matterella have agreed on the composition of the new government. A more pro-European economist, Giovanni Tria,  will assume the position of Finance Minister and Giuseppe Conte will become Prime Minister.

Earlier in the week, the week, the EUR/USD plunged to a 10-month low of 1.1510, and Italian bonds soared on the specter of new elections. Given the anger by the President rejection of a Euroskeptic finance minister, fear emerged that the polls would be a de-facto plebiscite on euro-zone membership. 

The formation of a new government alleviates these fears, but a populist government bent on enlarging the deficit would clash with Germany and France. Also, it would open the door to further confrontations around spending. 

In Spain, Prime Minister Mariano Rajoy is on his way out after a majority was reached against him. While Spanish stocks suffered, the Euro was not affected. The incoming PM Pedro Sánchez is committed to the budgets recently passed and is also pro-European. In general, Spaniards are traditionally fans of the European project. 

Additional political developments and trade-related headlines could swirl the pair after the dust settles from the Non-Farm Payrolls.

EUR/USD Technical Analysis

EUR USD daily chart June 1 2018

The EUR/USD is off the lows and also above the steep downtrend resistance that capped it in recent weeks. However, the RSI is no longer in oversold territory, thus pointing to further losses. Momentum remains firmly to the downside. 

Support awaits at Friday's close at 1.1648. It is followed by 1.1610 which was a stepping stone on the way down, by the November low of 1.1550, and finally by the fresh 2018 low of 1.1510.

On the topside, 1.1726 was the high point on Monday, 1.1767 was yet another stepping stone on the way down, and 1.1822 was the May 9th swing low.

More: EUR/USD path of least resistance is down on Non-Farm Payrolls day — Confluence Detector

Author

Yohay Elam

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

More from Yohay Elam
Share:

Editor's Picks

GBP/USD surrenders some gains, back to 1.3420

GBP/USD holds on to moderate gains above 1.3400 the figure on Friday. Optimism surrounding the UK government’s leadership transition and expectations of further BoE tightening support the British Pound, while easing tensions in the Middle East and fading Fed rate-hike expectations weigh on the US Dollar.

EUR/USD turns positive, targets 1.1450

EUR/USD now picks up pace and advances toward the 1.1440 region on Friday, up modestly for the day. With no major economic data due, lingering uncertainty over the US-Iran conflict keeps investors cautious, limiting the pair's upside.

Gold remains offered, still below $4,100

Gold struggles to extend Thursday’s rebound and navigates below the $4,100 mark per troy ounce on Friday. Uncertainty surrounding the Middle East conflict limits the precious metal’s upside, which is also under pressure amid rising US Treasury yields across the curve.

Week ahead – US CPI and Warsh testimony to take centre stage, BoC eyed too

US inflation report and Warsh testimony to headline the week. Dollar to dominate amid slew of other US data and Mideast tensions. Amid fresh Iran escalation, China GDP to shed light on Q2 impact. Bank of Canada not expected to follow RBNZ with rate hike.

Five sessions, one round trip: Why the whipsaw is exactly what Warsh ordered

Markets opened July with a December hike as the base case and spent five trading sessions unlearning and relearning it. A 57K payrolls print bled the tightening bets out of the strip; a re-shut Strait of Hormuz is pushing them back in. Wednesday's minutes from the June Federal Open Market Committee meeting landed mid-round-trip, describing a world that had already stopped existing.

Five sessions, one round trip: Why the whipsaw is exactly what Warsh ordered

Markets opened July with a December hike as the base case and spent five trading sessions unlearning and relearning it. A 57K payrolls print bled the tightening bets out of the strip; a re-shut Strait of Hormuz is pushing them back in. Wednesday's minutes from the June FOMC meeting landed mid-round-trip, describing a world that had already stopped existing.