EUR/USD Bears Are in Control as Euro Looks Vulnerable

Key Talking Points:

• EUR/USD drops to lowest level since April as USD shows resilience
• NFP data to determine EUR/USD short-term performance

EUR/USD has been unable to regain its footing since the selloff two weeks ago. The US Dollar has shown resilience in what would typically be end-of-month rebalancing weakness for the currency as traders await the much anticipated NFP data out tomorrow. Yesterday’s ADP data showed an increase in 629k jobs in June, which was above the 600k expected. But if anything we’ve learned over the last few months is that ADP is a bad predictor of NFP data, but hopes are high for a strong beat over tomorrow’s expected number of 700k.

The past two months have shown mediocre readings in non-farm payrolls and that has brought market sentiment down. It’s not so much that the data isn’t showing good economic recovery, it’s the fact that the Fed has suggested a few months of strong jobs data before they can start thinking about changing monetary policy, which is a good thing for stocks but was dragging on the US Dollar.

On the euro front, there are still concerns about the spread of the Delta variant across the continent, threatening the summer holiday season and putting a strain on the euro. With regards to the ECB, the likelihood of any policy change, or even mention of it, before year-end is very slim, with money markets not expecting a rate hike until 2023. This difference in central bank positioning is likely going to be a key driver for EUR/USD going forward.

Source: Refinitiv

EUR/USD Levels

EUR/USD is hovering near its lowest level since April, with the stochastic oscillator just below 30, showing that bears are in control. Immediate support may be found at the psychological 1.18 level followed by 1.1738 and 1.1704, which would mark the lowest point for the pair in 2021.

A weaker-than-expected NFP reading would likely knock the Dollar back and allow EUR/USD to regain some upward momentum. The key level to watch out for is 1.1975 where two previous attempted rebounds have been halted. Further than that is where the moving averages are located so we may see some increased resistance.

EUR/USD Daily chart

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— Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin