The EUR/USD is eyeing the 1.916 resistance, following the European Central Bank's interest rate cut from 4.50% to 4.25% and higher-than-expected U.S. initial claims, which totaled 229,000 for the week ending June 1. Traders are expected to keep a close watch on this currency pair due to the upcoming release of significant economic data, including the Non-Farm Payrolls, which could potentially impact currency valuations.
Overview
The EUR/USD is eyeing the 1.916 resistance, following the European Central Bank's interest rate cut from 4.50% to 4.25% and higher-than-expected U.S. initial claims, which totaled 229,000 for the week ending June 1. Traders are expected to keep a close watch on this currency pair due to the upcoming release of significant economic data, including the Non-Farm Payrolls, which could potentially impact currency valuations.
High Impact Economic Events
Friday 12:30 pm (GMT+0): Employment Change (CAD)
Friday 12:30 pm (GMT+0): Unemployment Rate (CAD)
Friday 12:30 pm (GMT+0): Average Hourly Earnings m/m (USD)
Friday 12:30 pm (GMT+0): Non-Farm Employment Change (USD)
Friday 12:30 pm (GMT+0): Unemployment Rate (USD)
Technical Analysis
The EURUSD has been following an upward trend since April 16, when it rebounded from the year's low of 1.01601. Afterward, the currency pair formed an upward reversal pattern known as a failure swing in technical analysis. Specifically, the low point at 1.06493 was higher than the previous low at 1.0601, and the exchange rate surpassed the high point at 1.07529, indicating potential for further price increases. Both the 50-period Exponential Moving Average and the Momentum oscillator support a bullish outlook for the pair. Prices are currently above the EMA, and the Momentum oscillator values are above the 100 baseline. Upon closer examination, there is a negative divergence between the price and the Momentum oscillator.
Potential Upside Targets
If the bulls manage to maintain control of the EURUSD market, traders may consider the following three potential upside targets:
1.09230: The initial upside target is 1.09230, representing the 261.8 percent Fibonacci Extension drawn from the peak of 1.07529 down to the trough of 1.06493.
1.09431: The second upside target is 1.09431, which represents the (R2) resistance level estimated using the weekly Pivot Point methodology.
1.09971: An additional potential price objective could be identified at 1.09971, representing the (R3) resistance level utilizing the standard Pivot Point method on the weekly timeframe.
Potential Downside Targets
If the bears manage to take control of the market, traders may find potential opportunities in the following four downside targets:
1.08401 The initial support target is 1.08401, corresponding to the weekly Pivot Point estimated using the standard methodology.
1.07882 The second price objective stands at 1.07882, aligning with the trough marked on May 30.
1.07529: The third potential downside target is estimated at 1.07529, representing the peak of the bullish technical reversal.
1.06493: An additional potential support level can be identified at 1.06493, representing the trough marked on May 1.
Fundamentals
According to the latest report from the U.S. Department of Labor, in the week ending June 1, the seasonally adjusted initial claims increased by 8,000 to 229,000, which exceeded market expectations. Additionally, the previous week's level was revised up by 2,000 to 221,000.
The European Central Bank reduced the three primary ECB interest rates by 25 basis points. Consequently, the interest rate on the primary refinancing operations, as well as the interest rates on the marginal lending facility and the deposit facility, will be lowered to 4.25%, 4.50%, and 3.75%, respectively, starting from 12 June 2024. At the same time, the ECB remains cautious about the potential for higher inflation and is prepared to keep interest rates at restrictive levels for as long as needed without revealing the future rate-cut strategy.
Conclusion
The EURUSD is trending upwards, propelled by technical indications and mixed economic data. Meanwhile, traders' reaction to the ECB's decision to cut interest rates by 0.25 basis points has not drastically affected the exchange rate, as it was in line with market expectations. The upcoming release of the Non-Farm Payrolls later today is expected to shed light on the future direction of the most traded currency pair.