The EUR/USD pair was under pressure and trading at 1.1380 having failed to keep its recent gains. The pair made a high of 1.1455 earlier in the week, which was the six-week high, but the pair has trended lower since. The downside was somewhat predictable, as the momentum for the Euro was beginning to fade. Although the Eurozone Services PMI data had a higher than anticipated reading, which gave the common currency a small pop at first, it was insufficient to lean toward a rally. Soft inflation data and expectations that the ECB would cut rates kept the Euro from gaining further traction.
With the releases we got on Wednesday, this will shape up as an important day for defining short-term direction, as traders will be looking at many releases on Wednesday’s calendar including the US ISM Services PMI and ADP Employment Change releases. These reports will influence expectations of Friday’s Nonfarm Payrolls, as well as give traders visibility on the direction of the US Dollar.
Eurozone PMI and Inflation
The Euro saw brief support after May’s Services PMI was revised higher to 49.7 from a preliminary reading of 48.9. While still indicating contraction, the smaller-than-expected decline offered some optimism. The data revealed weak demand and shrinking new business, but rising employment and improving confidence pointed to resilience in the sector.
However, this positive revision was overshadowed by disappointing inflation figures. The Eurozone CPI fell to 1.9% YoY, dropping below the European Central Bank’s 2% target for the first time in months. Core inflation eased to 2.3%, adding pressure on the ECB to move forward with a 25 basis point rate cut, expected to be announced after the central bank’s two-day policy meeting on Thursday.
US Dollar Strengthens on Strong Job Openings, Awaits ADP Report
Across the Atlantic, the US Dollar gained traction on Tuesday afternoon after the JOLTS report showed unexpected growth in job openings, reporting 7.39 million job openings in April beating the expected rate entirely. Its indicative of continued support in the US labor market and continues to mitigate fears around the fed being decisively dovish with rate cuts.
On the other hand, factory orders for April represented a contraction of 3.7%; deeper than 3% expected; and is representative of the continued weak status of the US manufacturing sector which is influenced by restrictive trade regulation.
To finish the US session, it is ADP employment report day; expectations are that jobs created for the month of May will rebound sharply giving a total of around 115,000 new jobs vs 62,000 in April. The ADP employment report will set the tone for Friday’s Nonfarm Payrolls employment report; which is the key report in helping to evaluate policy expectations for the Fed.
EUR/USD Rejected at 1.1455, Eyes Support at 1.1310
From a technical perspective, EUR/USD is showing signs of fatigue after hitting resistance at 1.1455. The pair has pulled back to the mid-1.1300s, with the 1.1365 zone currently acting as immediate support.
Momentum indicators on the 4-hour chart are approaching bearish territory, and the US Dollar Index (DXY) is gaining strength. A break below 1.1365 could expose the next downside levels at 1.1310, followed by stronger support near 1.1210—the lows seen on May 20 and 29.
Market Poised for Volatility Ahead of ECB and US Labor Data
The EUR/USD pair is currently trading within a narrow range as market sentiment shifts between opposite messages sent by the ECB and the Fed with respect to monetary policy. A potential ECB rate cut coupled with stable or strong US jobs data may shift the balance toward the US Dollar in the near-term. On the verge of the ADP employment report and the ECB rate announcement, the markets have a heightened tolerance for volatility and should keep a close eye on technical support and resistance levels.
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