Yesterday was marked by the biggest increase in the EURUSD exchange rate for more than a month. The dollar was actively depreciating against almost all world currencies, and euro buyers took advantage of the situation. The quotes got back above 1.0745. The most optimistic market participants are waiting for further rise to 1.081. However, before this the currency market will experience a significant volatility burst.
Today's report on the U.S. labor market for May will be decisive for the short-term dynamics of EURUSD. The market's consensus forecast assumes a slight rise in unemployment with a significant reduction of the number of created jobs. However, the job openings metrics published earlier did not show the expected cooling of the labor market. Yesterday's ADP jobs data also suggested a slight slowdown in hiring.
Overall, the U.S. labor market remains resilient, with unemployment claims hovering at very low levels for several weeks. Most economists expect the average wage to continue growing at least through the end of the year. While recent speeches by the Fed officials have increased the likelihood of a pause in monetary policy tightening at the June 14 meeting, today's labor market statistics could very quickly make another 0.25% rate hike the main scenario again.
Some support for the euro was provided by the ECB President Christine Lagarde's comments on further monetary policy tightening despite rapidly slowing inflation. However in this case market expectations have not changed much: the ECB is still expected to hike rates by 0.25% in June and July. The direction of the EURUSD continues to depend almost entirely on the state of the dollar.
The first sign of fading upward momentum in EURUSD will be a descent to the level of 1.0745. A full resumption of the downtrend should be expected when the quotations reach the level of 1.07.
Consider the following trading strategy:
Sell EURUSD in the range of 1.075–1.077. Take profit – 1.07. Stop loss – 1.081.
Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion.
This content is for informational purposes only and is not intended to be investing advice.
