EUR/USD: On the defensive despite the corrective rally, focus on US wage growth numbers

The EUR/USD pair jumped above 1.17 on Tuesday as Italy's anti-establishment parties revived coalition plans, ending three months of political deadlock.

Further, the Eurozone inflation rate rose at a rate of 1.9 percent in May, beating the estimate of 1.6 percent and rising well above the previous month's print of 1.2 percent.

Despite the good news, the EUR/USD's monthly close was below 1.1710 (38.2 percent Fibonacci retracement of 1.0341-1.2556), boosting the odds of a deeper sell-off. The 5-month moving average (MA) and the 10-month MA has rolled over in favor of the bears.

Meanwhile, the US President Trump has launched a trade war on the EU, by slapping tariffs on Steel and Aluminum imports. Further, Spanish Prime Minister Rajoy could face defeat in the no-confidence vote to be held today. 

So, the common currency is not out of the woods yet, despite the 200-pip rally from the weekly low of 1.1510.

A better-than-expected US non-farm payrolls and wage growth data would bolster the already bearish technical setup seen in the monthly chart and could derail the corrective rally. On the other hand, the probability of a Fed rate hike in June will likely drop below 70 percent, sending the US dollar lower across the board if the wage growth figure misses estimates by a wide margin.

EUR/USD Technical Levels

As of writing, the pair is trading at 1.1682. The resistance is seen at 1.1710 (38.2% Fib R of 1.0341-1.2556), 1.1723 (23.6% Fib R of 1.2414-1.1510), and 1.1769 (4H 200MA). Meanwhile, support is lined up at 1.1658 (50-hour MA), 1.1633 (100-hour MA), and 1.16 (psychological level).