05.06.202217:26 Forex Analysis & Reviews: EUR/USD. Results of the week. The bears thwarted the upward blitzkrieg, but could not turn the tide in their favor

The euro-dollar pair ended the trading week at the base of the 7th figure, at 1.0718. After two weeks of steady growth, the first week of June was not in favor of EUR/USD bulls. However, bears also did not become beneficiaries of the current situation – by and large, a stalemate. For the development of the upward trend, the pair's bulls needed not only to settle above 1.0760 (the lower limit of the Kumo cloud on the daily chart), but also to overcome the support level of 1.0800, in order to then settle within the 8th figure. This did not happen: traders tested the 1.0760 mark several times, but each time they retreated back, not even daring to approach the eighth price level. In turn, bears pulled the price into the area of the 6th figure several times to remind them of their downward ambitions. However, their efforts were also in vain. To resume the downward trend, it is necessary to break through the support level of 1.0610, which corresponds to the middle line of the Bollinger Bands indicator on the D1 timeframe. While the low of the week was at 1.0627.

In other words, neither bulls nor bears have fulfilled their minimum program to turn the situation in their favor. It's all the fault of the contradictory fundamental picture that has developed over the past week. First of all, for the US currency.

If we talk about macroeconomic reports, the dollar has not received any significant support here. The latest data on the growth of the US labor market had its flaws, although some components came out in the green zone. Salaries were somewhat disappointing. The growth rate of average hourly wages has been slowing for the second consecutive month. The unemployment rate remained at 3.6%, while most experts expected this indicator to decrease to 3.5%. But at the same time, the number of people employed in the non-agricultural sector increased by 390,000 in May. The forecast was more pessimistic, especially amid the disappointing report from the ADP agency.

In general, the Non-farm payrolls report was interpreted by the market in favor of the greenback - EUR/USD bears even attempted to decline into the area of the 6th figure. But the index of business activity in the service sector published a little later from the Institute of Supply Management (ISM) offset the downward rush. The indicator came out in the red zone, falling to 55.9 points from the previous value of 57.1 points. Firstly, this is the weakest result since February 2021. Secondly, ISM in the service sector has been declining for the second month in a row, which indicates a certain trend. In the face of such a report, EUR/USD bulls kept the pair within the 7th figure, not allowing opponents to finish the week below the target of 1.0700.Also, do not forget that last week data on inflation growth in the eurozone were published. The European consumer price index continues to update historical records. This time, the overall CPI jumped to 8.1%. Core inflation rose to 3.8%. Traders reacted with restraint to this release, coming to the reasonable conclusion that the published figures will not encourage European Central Bank members to tighten the already announced intentions. Let me remind you that ECB President Christine Lagarde announced that the central bank is ready to raise the rate by 25 points in July, and by 25 points in September. She also allowed further steps in this direction, however, in a hypothetical way.

But it should be noted here that some representatives of the ECB nevertheless tightened their rhetoric after the inflation report. For example, the head of the Central Bank of Slovakia, Peter Kazimir, said that he expects a rate increase of 25 basis points at the end of the July meeting, but at the same time he is "open to discussion" on the issue of increasing the rate by 50 points in September. A member of the Governing Council of the ECB, Austrian Robert Holzmann also expressed the opinion that a 50-point increase will be required in the foreseeable future. And although such hawkish signals are (so far) isolated, Deutsche Bank's currency strategists have already managed to revise their earlier forecasts regarding the ECB's next steps. According to the updated forecast, the ECB will raise the rate by 50 basis points at one of the next two meetings, and by 25 at the other. That is, in September, the deposit rate will already be at the level of 0.25%. Such possible prospects allow EUR/USD bulls to "stay afloat", at the level of the 7th figure.

If we talk about the external fundamental background, then uncertainty dominates here. So, at the end of May, it was reported that US President Joe Biden was considering "all options" for changes that could be made to the tariff policy towards China, including the partial abolition of duties or a new trade investigation. However, since then, "who is still there." It did not come to concrete decisions, but at the same time the White House did not reject the idea voiced by Biden.

The situation with the oil market is also uncertain. As you know, the European Union last week finally approved the sixth package of sanctions against Russia. It includes a partial oil embargo – a ban on the import of oil transported by sea (but not by pipelines). Immediately after the announcement of this decision, the cost of a barrel of Brent jumped to $120. The dollar followed oil and strengthened throughout the market. But then the price of Brent oil dropped below $116 per barrel on the OPEC+ decision. The cartel increased production quotas in July and August by 648,000 barrels per day. Whereas it was previously planned that the quota for will be increased by only 430,000. The oil market has sunk somewhat, but the relevant experts do not rush to conclusions here: in their opinion, the real effect of such a decision for the oil market "will be minimal."

In regards to geopolitical risks, uncertainty also prevails here. For example, the Russian-Ukrainian negotiations have finally stalled – this is acknowledged by representatives of both sides. At the same time, information began to slip in the media more and more often that third-party, but at the same time significant political players are trying to find the key to resolving the situation. For example, according to CNN, senior officials from the United States, Britain and the EU "hold regular meetings to discuss options for finding a compromise solution." In other words, it is also too early to draw any unambiguous conclusions - both optimistic and pessimistic.

Thus, the EUR/USD pair is stuck within the 7th figure quite reasonably. To date, neither bulls nor bears of the pair have fundamental arguments for turning the situation in their favor. If we consider medium-term trading, then it is advisable to make appropriate decisions only after the pendulum swings in one direction or another. Short positions will be relevant when the bears settle below the 1.0700 mark (in this case, a further descent to the support level of 1.0610 is likely, i.e. to the middle line of the Bollinger Bands on D1). Longs – after overcoming the 1.0800 mark and consolidating in the area of the 8th figure.