- EUR/USD refreshes three-week low, prints four-day downtrend.
- Risk-negative headlines for US, China favor greenback strength amid pre-NFP trading lull.
- Eurozone Retail Sales, Powell’s reaction to tapering woes will act as intermediate catalysts.
- Strong US employment figures could extend the key support breakdown.
EUR/USD drops for the fourth consecutive day while refreshing the three-week low near 1.2115, down 0.11% intraday, heading into Friday’s European session. The bears cheer tapering woes and the strong US dollar, not to forget second-tier risk-linked headlines, ahead of the key US data/events.
US Federal Reserve’s (Fed) dialing back to the key support measure used throughout the pandemic set the stone falling for EUR/USD ahead of the early signals for the US jobs and inflation put a safe-haven bid under the US dollar.
Not only the ADP Employment Change that jumped to 972K, well beyond the 650K forecast, strong prints of Q1 Unit Labor Costs, Nonfarm Productivity and Weekly Jobless Claims also pin-point an upbeat NFP for May, expected 664K versus 266K. Further, ISM Services PMI also jumped the most on record with 64.00 figures versus 63.00 expected whereas the price paid measure marked the second-highest reading. Hence, upbeat prints of initial signals suggest that the world’s largest economy is heating more than Fed policymakers think, which in turn could result in tapering of the easy money policies.
The aforementioned risk-off catalysts join US President Joe Biden’s push for a tax hike and extending bans on 59 Chinese companies, originally introduced by Donald Trump, add to the market’s downbeat sentiment. Further, an arrest of Hong Kong activist and the EU-UK tussles offers extra strength to the US dollar, due to its safe-haven appeal.
That said, the US dollar index (DXY) extends the previous day’s rally with 0.10% intraday gains by the press time whereas stock futures track US equities and the Treasury yields are firmer to portray the risk-off mood.
Moving on, Eurozone Retail Sales for April, expected 25.5% versus 12% prior, will become the immediate catalyst that may probe EUR/USD sellers ahead of Fed Chair Powell’s speech. Should the Fed Boss fails to convince markets, the bears will wait for the NFP and then attack the 1.2000 psychological magnet.
Read: US May Nonfarm Payrolls Preview: Analyzing major pairs’ reaction to NFP surprises
Technical analysis
A clear break of an ascending trend line from March 31, backed by the most bearish MACD signals in two months, favors EUR/USD bears to aim for a confluence of 50-day and 100-day SMA, as well as May 13 low, around 1.2050-45. Alternatively, a corrective pullback will be immediately challenged by the 1.2170-80 area ahead of the stated trend line, around 1.2230.
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