EUR/USD Forecast: Sell the rumor, buy the fact? Why Nonfarm Payrolls could result in a bounce


  • EUR/USD has tumbled down in response to a trio of upbeat US figures and taper speculation.
  • All eyes are on US Nonfarm Payrolls, which could fall short of elevated estimates.
  • Friday's four-hour chart is showing the currency pair is near oversold conditions.

High expectations, bitter disappointment? The story of April's Nonfarm Payrolls may repeat itself in May, at least for the US dollar. The greenback has been benefiting from robust US data pointing to accelerating job gains and also a pickup in inflation. 

ADP reported a leap of 978,000 private-sector jobs. While that is the most direct hint toward the official NFP, the correlation between the payrolls company's figures and the ones coming out from the government has been mixed since the pandemic broke out. 

Another reason to expect a somewhat subdued jobs report comes from the employment component of the ISM Services Purchasing Managers' Index. Similar to the Manufacturing PMI published earlier in the week, it showed a slowdown in hiring. The third promising piece in the trio, the fall in jobless claims below 400,000, is for the week ending May 28 – after NFP surveys were conducted. 

Nonfarm Payrolls are set to show a leap of 664,000 positions in May, far above 266,000 initially reported for April. It is essential to note that the NFP will likely consist of substantial revisions. Even with a robust number for May on top of an improved figure for April, the Fed will still likely assess that at least seven million people have yet to return to their pre-pandemic jobs.

See

Are the dollar's gains unjustified? Not at all, as the greenback has rightfully been benefiting from the evidence of inflation in ISM's surveys and by the Federal Reserve's baby steps toward tapering down its current pace of buying $120 billion worth of bonds every month. However, the NFP could provide an opportunity to sell the dollar before the next rise. 

Time for a taper tantrum? Three reasons why the dollar is set to extend its gains

On the other side of the pond, the euro remains supported by the rapid drop in COVID-19 cases in the old continent, but that is mostly priced into the euro. The EU is preparing to auction its new bonds to fund its special aid package. 

European Central Bank President Christine Lagarde is set to speak alongside Fed Chair Jerome Powell ahead of the US jobs report, but their topic of the day is climate change, something the markets ignore. 

All in all, it is almost exclusively all about the NFP, which will likely fail to meet sky-high estimates and trigger a downside dollar correction.

EUR/USD Technical Analysis

Euro/dollar is suffering from downside momentum on the four-hour chart and has dropped below the 200 Simple Moving Average. However, the Relative Strength Index is nearing the 30 mark, and falling below that level would put the pair in oversold territory. 

Some support awaits at the daily low of 1.2105, followed by 1.2055, a cushion from mid-May, and then 1.2015, 1.20 and 1.1945.

Some resistance is at the daily high of 1.2130, followed by 1.2160, 1.2175 and 1.22, which played a role in EUR/USD's trading in recent weeks.

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