02.06.202118:32 Forex Analysis & Reviews: EUR/USD. May Nonfarm release pressures the market

Over the past two weeks, the euro-dollar pair has been trading within the wide price range of 1.2150-1.2270, occasionally leaving its borders on the wave of impulse shots. Starting from May 18, the pair managed to update the 5-month high (1.2266), and visit the area of local lows, being marked at 1.2130. But each time, the price would return to the area of the 100-point price range, which indicates the indecision of both buyers and sellers of EUR/USD.

All price movements are caused by certain fundamental factors. Both sides of the confrontation lack a powerful informational occasion to determine the vector of their further movement. The conflicting fundamental picture allows traders to trade within the above-mentioned price echelon, starting from its borders.

On the one hand, the current situation has its advantages: at the lower border of the price range, you can confidently open longs, and in the area of the upper threshold, accordingly, you can enter sales. At least over the past two weeks, the pair practically did not leave the range, and if it did, it was literally for several hours. And yet, sooner or later, the pair will get out of the "flat swamp". The only question is, in which direction it will then go - up or down? This issue is relevant especially ahead of the May Nonfarm, which will be published this Friday.

Actually, the upcoming Friday release is connected (partly) with the activity of dollar bulls. The preliminary forecasts are positive, and this fact suggests that the representatives of the Fed will further tighten the tone of their rhetoric, allowing the early tapering of QE. It is worth noting that recently some members of the Federal Reserve have indeed sounded "hawkish".

In particular, Federal Reserve Bank of San Francisco President Mary Daly announced at the end of May that "the Fed is in the early stages of discussing how and when to start phasing out large-scale incentives." In turn, a member of the Board of Governors Lael Brainard yesterday also voiced a rather hawkish rhetoric, announcing the Fed's readiness to "act ahead of the curve." Even the consistent representative of the "doves" Neel Kashkari recently surprised the market with his words that the regulator "has the appropriate arsenal" to fight inflation. In the wake of such statements, the dollar index "revived" and returned to the area of the 90th figure. The euro-dollar pair, in turn, actually reached the lower border of the above range, dropping to 1.2160.

And yet, the sellers of the pair failed to break out of the "flat swamp". What is the reason for the fatal "bad luck" of the EUR/USD bears?

In my opinion, traders' hawkish expectations are illusory. The market reacts to loud headlines, phrases taken out of context, and other indirect factors that allegedly justify a possible tightening of monetary policy parameters. After all, each of the above "hawks" in their speeches actually pointed out the need for a comprehensive analysis of the situation - first of all, taking into account the dynamics of the main indicators of the labor market. For example, Federal Reserve Bank of Cleveland President Loretta Mester, previously stated that strong inflation should go exclusively with strong employment indicators. Over the past two weeks, many other members of the American regulator have also voiced their position - Clarida, Bostic, Rosengren, Kaplan, Evans, Barkin. All of them reported that "it is too early to talk about phasing out QE." This message, in one interpretation or another, was voiced by all of the above representatives of the American regulator. And there is no doubt that Jerome Powell shares the position of his colleagues.

But the market sometimes prefers to hear only what it wants to hear, ignoring other signals. The record growth of the consumer price index, as well as the record growth of the PCE index, allowed the dollar bulls to remind themselves again.

However, in my opinion, trusting the strengthening of the greenback is quite risky - and especially when paired with the European currency. Traders are clearly counting on "rainbow Nonfarm", which will only strengthen the position of dollar bulls. It should be recalled here that on the eve of the previous Nonfarms, experts were also confident that the labor market would become an ally of the strong dollar. But the release came out in the "red zone", significantly falling short of the forecast levels. Thus, according to preliminary forecasts, the unemployment rate in the United States should have dropped to 5.8%. But in reality, unemployment did not decrease, but increased to 6.1%. The employment growth rate was also disappointing. With a growth forecast of 990,000, it grew by only 266,000. In the private sector of the economy, the number of employed was to increase by 893,000, in reality, the indicator grew by 218,000. In the manufacturing sector of the economy, the indicator went into negative territory altogether (for the first time since January): with the growth forecast of 55,000, it came out at around 18,000.

Also, do not forget that "hawkish notes" are also voiced by some representatives of the European Central Bank. And this week they have additional arguments in favor of their position. The latest data on the growth of inflation in Germany and the entire Eurozone came out in the "green zone", reflecting the recovery processes. Given this fact, the June meeting of the ECB (which will be held on the 10th) may pass under the sign of a "split", which will be interpreted in favor of the single currency.

Thus, in my opinion, in the medium term, the EUR/USD pair retains its growth potential, at least to the upper border of the above price range.

Technical analysis suggests that the EUR/USD pair is between the middle and upper lines of the Bollinger Bands indicator, as well as on the Tenkan-sen line on the daily chart. If the pair consolidates above this line (that is, above 1.2210), then the Ichimoku indicator will again form a bullish "Parade of Lines" signal, in which all the indicator lines are above the price. In this case, from a technical point of view, the path to the main resistance level - 1.2280 (upper line of the Bollinger Bands) will be opened. Therefore, from current positions, you can open longs to the above price barrier.