EUR/USD in Holding Pattern Ahead of US Data
Frankfurt (June 2) EUR/USD is little changed from Thursday’s North American close in today’s session, holding near 1.1222, up a modest 0.09%. Trading will likely remain muted ahead of the release of US nonfarm payroll data, which is due at 08:30 ET.
The employment data has the potential to influence monetary policy decisions throughout the remainder of the year. At present, an interest rate hike at the June 13-14 FOMC meeting is priced into the market, with Fed fund futures currently indicating a 91.2% probability of a 25bps increase later this month. Expectations for rate hikes beyond June, however, are now minimal.
A strong nonfarm payroll report today has the potential to boost the dollar, thereby putting pressure on EUR/USD. A reading of 185K is forecast for May, following a reading at 211K in April. The unemployment rate is expected to remain unchanged at 4.4% and average hourly earnings is expected at 0.2% following a reading at 0.3% in April. Expectations are high for strong numbers, as the ADP Employment Change, reported on Thursday, came in much better than expected, showing 253,000 positions added to private sector payrolls versus consensus forecast for a reading at 180K.
A lackluster jobs report today will likely put another dent in the dollar, which has already experienced significant technical deterioration in recent weeks. Such a development would be a positive for EUR/USD, which remains within reach of the rally high established in May at 1.1268.
At present, the bias in EUR/USD is to the upside, given this week’s breakout from a bull flag formation on the daily chart. This formation developed following the establishment of the May peak. The upside target derived from the pattern is at the 1.1650 level.
On Thursday, EUR/USD came under pressure as the dollar strengthened in reaction to the strong ADP report. The pullback in the pair resulted in a test of the upper boundary of the flag formation. However, return moves following breakouts are common and the pullback did not negate the bullish implications of the pattern. In today’s session, the lower boundary of the flag comes in near the 1.1200 level. A sustained move below this level would call into question the validity of the flag and suggest a return to the low established on Tuesday at 1.1109 is possible.
On a positive reaction to the employment report, first resistance for EUR/USD is at the May high at 1.2680, followed by the spike high established November 9th at 1.1300.
Source: EconomicCalendar
