Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.1500.
- Add a stop-loss at 1.1655.
- Timeline: 1-2 days.
Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.1655.
- Add a stop-loss at 1.1500.
The EUR/USD exchange rate retreated as geopolitical risks rose and after the US published strong macroeconomic data. It retreated to 1.1600, down modestly from this week’s high of 1.1685.
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Geopolitical Risks and Strong US Labor Market
The EUR/USD pair dropped after the US released relatively strong jobs numbers. A report released on Tuesday showed that the number of job openings jumped sharply in April, higher than what analysts were expecting.
Another report by ADP showed that the private sector added 122k from the previous 105k. This increase was better than the median estimate of 118k, a sign that the economy is holding steady despite the ongoing war.
More data showed that the private sector continued expanding. A report by S&P Global showed that the services and composite PMIs slipped slightly to 50.7 and 51.5, respectively. It remained above the expansion zone of 50. The ISM non-manufacturing PMI rose from 53.6 to 54.5 in May, higher than the median estimate of 53.7.
The EUR/USD pair also retreated after the US published strong factory and durable goods orders. As a result, there are signs that the Federal Reserve will hold interest rates steady in the coming months as inflation remains above the 2% target.
The next key data to watch will come out on Friday when the US releases the non-farm payrolls (NFP) data. Economists expect the report to show that the labor market strengthened in May.
The pair also reacted to the ongoing tensions between the US and Iran. The two countries continued launching attacks against each other. For example, Iran launched a drone barrage at Kuwait Airport in response to US attacks on its country. There is a risk that the two countries will intensify their attacks in the near future.
EUR/USD Technical Analysis
The EUR/USD pair pulled back after the US jobs data. It retreated to a low of 1.1600, down from last week’s high of 1.1685. It has formed a bearish flag pattern, a common continuation sign. This pattern is made up of a vertical line and an ascending channel.
The pair has moved below the Supertrend indicator and the 50% Fibonacci Retracement level. Therefore, the pair will likely have a bearish breakout, potentially to the psychological point at 1.1500. A move above the resistance level at 1.1650 will invalidate the bearish outlook.
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