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EUR/USD registered a new lower low signaling that the downside movement will resume. The price drops as the US Dollar Index rallies. The index has finally turned to the upside after being located below strong resistance levels.
As you already know from my analysis, I've told you that the USD could take the lead again if the US economic figures will come in better than expected. The ISM Services PMI increased from 62.7 to 64.0 points, the ADP Non-Farm Employment Change was reported at 978K beating 645K estimates, while the Unemployment Claims dropped further to 385K, below 400K expected.
You should still be very careful today as the US is to release high-impact data. The Non-Farm Payrolls is expected around 645K in May versus 266K in April, the Unemployment Rate could drop from 6.1% to 5.9%, while the Average Hourly Earnings may register a 0.2% growth.
EUR/USD was somehow expected to drop after developing a major Rising Wedge pattern. Its failure to reach the weekly pivot point (1.2261) signaled exhausted buyers. The rate dropped below the uptrend line, it has retested it and now resumes its sell-off.
Technically, the rising wedge pattern was activated after dropping and closing below 1.2132 former low. It has stabilized below the weekly S1 (1.2127) level signaling a deeper drop.
Personally, I believe that the bearish scenario could be invalidated only if the US data will come in worse than expected. The S2 (1.2062) and the 38.2% retracement level are seen as the immediate downside targets.
Temporary rebounds could help us to go short again. The downside reversal could continue if the US data will come in line with expectations or better.
The current breakdown below the S1 and closing under the former low represented a selling opportunity with downside targets at 1.2050 and 1.2000 levels.
Still, you should be careful because some poor US data reported today could push the pair higher again.
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