• EUR/USD gapped lower and tested five-week lows near 1.0730.
• The US Dollar picked up strong pace and advanced to multi-week tops.
• Political uncertainty in Europe resurged after Parliamentary elections.

On Monday, the US Dollar (USD) maintained its post-NFP uptrend well and sound, prompting EUR/USD to extend its downward momentum to five-week lows in the 1.0735–1.0730 band.

The firm price action in the Greenback, however, could not avoid part of the risk complex to regain some balance after Friday’s sharp losses and was exclusively derived from weakness in the European currency in response to results from parliamentary elections in the old continent and the call for snap elections by French President E. Macron to be held on June 30.

Monday, in the meantime, saw some ECB board members, including board member P. Kazimir, J. Nagel, and President C. Lagarde, urging caution in considering further interest rate cuts due to uncontrolled inflation and potential price pressures. They compared the bank’s interest rate trajectory to a mountain ridge, suggesting policymakers may wait multiple meetings before implementing further cuts.

Regarding the Federal Reserve (Fed), the latest Nonfarm Payrolls numbers in May (+272K) hurt bets on anticipated interest rate hikes and now suggest the likelihood of such a move in November or December.

The CME Group’s FedWatch Tool now suggests a nearly 65% probability of lower interest rates by the November 7 meeting and around 49% in September.

In the short term, the ECB’s recent rate cut widened the policy gap with the Fed, potentially exposing the EUR/USD to further weakness. However, in the longer term, the emerging economic recovery in the Eurozone, coupled with perceived slowdowns in the US economy, should mitigate this disparity, offering support to the pair.

Looking ahead, the next big events for the pair will be the release of US inflation figures tracked by the CPI and the FOMC meeting, both due on June 12.

EUR/USD daily chart

EUR/USD short-term technical outlook

If the bearish tone persists, EUR/USD may initially target the June low of 1.0732 (June 10), before the May low of 1.0649 (May 1), and the 2024 bottom of 1.0601 (April 16).

If bulls regain some composure, spot may test the June high of 1.0916 (June 4), seconded by the March top of 1.0981 (March 8), and the weekly peak of 1.0998 (January 11), all before reaching the important 1.1000 level.

So far, the 4-hour chart indicates some signs of life following the recent sharp drop. That said, the next hurdle is the 200-SMA (1.0802), ahead of the 55-SMA of 1.0846. On the flip side, 1.0732 comes first prior to 1.0723 and 1.0.649. The relative strength index (RSI) bounced to around 30.

USD/JPY Forecast Video for 06.04.23

US Dollar vs Japanese Yen Technical Analysis

The US dollar has drifted a little bit lower against the Japanese yen during the trading session on Wednesday, as it looks like we are continuing to look for some type of floor in this market. Alternatively, the market is paying attention to the 50-Day EMA above, as it has offered a bit of dynamic resistance, right along with the 200-Day EMA just above it.

Underneath, the ¥130 level is an area that offers a certain amount of psychological support, and we have seen the market bounce from there recently. The market formed a hammer the last time we got down to that area, to see the market bounce towards those moving averages. On the other hand, if we were to turn around and break above those moving averages, that would obviously be a very bullish sign, and open up the possibility of going to the ¥135 level.

On the other hand, if we were to turn around and break down below the hammer that we bounced from that ¥130 level, then it opens up the possibility of the market testing the ¥127.50 level, where we had formed a bit of a double bottom. Breaking down below that level then opens up the possibility of a move down to the ¥125 level. That would also be yet another large, round, psychologically significant figure that a lot of people would be paying attention to.

Keep in mind that the Bank of Japan continues its yield curve control situation, trying to keep the 10 year JGB down to 50 basis points. Having said that, there were remarks overnight from a Bank of Japan official that perhaps they could abandon that as the interest rate situation seems to be calming down. That being said, it’ll be interesting to see how this plays out over the longer term, but we are most certainly getting very close to a major support level that should have an effect on the market. Ultimately, this is a situation where you will have to pay close attention to the bond markets, and of course the overall strength of the US dollar itself.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

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EUR/USD Current price: 1.0752

• Far-right parties stood out in European Parliamentary Elections, spurring risk aversion.
• The United States Federal Reserve will announce its decision on monetary policy this week.
• EUR/USD bearish potential intact, break through 1.0700 at sight.

The EUR/USD pair gapped lower at the weekly opening, falling to 1.0732 during European trading hours, its lowest in a month. The result of the European Parliamentary Elections hit the Euro hard. Despite the centrist coalition managing to keep a narrow majority, far-right parties won in France, Austria, and Germany, leading to French President Emmanuel Macron calling for a snap parliamentary election in his country. Concerns about far-right parties gaining momentum pushed financial markets into risk-averse mode, boosting demand for the safe-haven US Dollar.

Demand for the Greenback pared ahead of Wall Street’s opening, although the USD holds on to gains against most major rivals. Meanwhile, European indexes trimmed a good part of their early losses but remain in the red. Across the pond, US indexes are poised to open with modest losses after falling on Friday following the release of a much stronger than anticipated United States (US) Nonfarm Payrolls (NFP) report.

Data-wise, the Eurozone published the June Sentix Investor Confidence index, which improved to 0.3 from -3.6 in May. The US has nothing to offer on Monday but will release the May Consumer Price Index (CPI) next Wednesday. The Federal Reserve (Fed) will announce its decision on monetary policy afterwards and publish alongside fresh economic projections. It seems hard that markets will move too far away from their current levels before the news.

EUR/USD short-term technical outlook

From a technical point of view, the EUR/USD pair is currently trading at around 1.0750, maintaining the bearish momentum. In the daily chart, the pair is developing below all its moving averages, with the 20 Simple Moving Average (SMA) having lost its bullish strength but holding above the longer ones, which hold directionless. At the same time, technical indicators head firmly south within negative levels, in line with another leg lower.

In the near term, and according to the 4-hour chart, EUR/USD is oversold. The Momentum indicator heads firmly south within negative levels, while the Relative Strength Index (RSI) indicator stabilized at around 23. Finally, the 20 SMA turned sharply south and is currently crossing below the 100 SMA, converging in the 1.0850 price zone. The 200 SMA, in the meantime, provides dynamic resistance in the 1.0800 price zone.

Support levels: 1.0730 1.0690 1.0645

Resistance levels: 1.0805 1.0850 1.0895

• Despite the recent strength of the US dollar following stronger-than-expected US jobs data, which has dampened any expectations of imminent US rate cuts, the GBP/USD currency pair has shown remarkable resilience.
• It settled around the 1.2720 level at the time of writing.
• Its highest gain last week touched the 1.2817 resistance level, the highest in nearly three months.

According to the results of the economic calendar, economists are divided on how many rate cuts Fed officials will signal for 2024 in their policy meeting this week, following recent high inflation numbers. Overall, policymakers are likely to backtrack on their long-held expectations of three US rate cuts this year, but it’s a close call on whether they will stick to two rate cuts or not. Moreover, a majority of 41% of economists expect the “dot plot” to show two cuts, while 41% expect the projections to show just one cut or no cuts at all, according to a Bloomberg survey.

The FOMC, which has kept the benchmark interest rate at its highest level in two decades since July last year, was encouraged by the sharp decline in inflation in the second half of 2023 to decide on a gradual rate cut this year. However, these plans were put on hold after failing to make progress in early 2024. In this regard, Ryan Sweet, senior US economist at Oxford Economics, said in response to the survey: “The Fed is waiting for a series of data that will boost its confidence that inflation is on a sustainable path towards its 2% target.” Added, “the balance of risks to our inflation outlook remains tilted to the upside.”

Overall, officials are confident they will keep the U.S. benchmark rate steady in a range of 5.25% to 5.5% for a seventh straight meeting next week. Concurrently, chairman Jerome Powell and his colleagues will update their economic forecasts and interest rates at the June 11-12 meeting for the first time since March. Thus, the lower cuts point to a later start to cuts. Ultimately, this could have implications for the November presidential election, although Fed officials are uniformly saying their decisions are based solely on economic considerations.

• 

Technical forecasts for the GBP/USD pair today:

We expect the GBP/USD rate to remain under downward pressure in an attempt to avoid further losses until markets and investors react to the release of US inflation figures and the US Federal Reserve’s policy decisions, along with a package of important UK economic releases. Based on the performance on the daily chart above, the 1.2775 resistance will remain a catalyst for bulls to push higher. The 1.3000 psychological resistance will be the most important to confirm the strength of the uptrend. Conversely, and over the same time frame, the 1.2600 support level will remain the strongest threat to the future of the current bullish rebound.

Ready to trade our daily Forex forecast? Here’s a list of some of the top forex brokers UK to check out. 

• Euro stays under heavy selling pressure at the beginning of the week.
• Political uncertainy following the European Parliament election weighs on sentiment.
• EUR/USD could extend its slide while 1.0790-1.0800 resistance area holds.

EUR/USD started the new week with a bearish gap and slumped to its weakest level in a month below 1.0750. The pair’s technical outlook points to oversold conditions but the Euro could have a difficult time staging a rebound in the current risk-averse market atmosphere.

The US Dollar (USD) capitalized on the strong jobs report on Friday and forced EUR/USD to erase its weekly gains. Nonfarm Payrolls in the US rose 272,000 in May. This print surpassed the market expectation of 185,000 and April’s increase of 165,000 by a wide margin. In turn, US Treasury bond yields surged higher ahead of the weekend and provided a boost to the USD.

Preliminary results of the European Parliament election triggered a flight to safety at the beginning of the week and caused the Euro to weaken against its rivals.

The European People’s Party became the clear winner, gaining 8 seats to secure a total of 184 seats in the European Parliament.

In France, National Rally won 31.5% of the vote against the Besoin d’Europe alliance’s – including President Macron’s Renaissance – 14.5%. French President Emmanuel Macron said that far-right parties in Europe were “progressing across the continent” and called for a snap election. Meanwhile, in Germany, Chancellor Olaf Scholz’s SPD became the third party behind the main opposition conservative party, CDU, which received 30% of the vote, and the far-right Alternative for Germany (AfD) party, which got nearly 16% of the vote.

Assessing the outcome of the European Parliament election, analysts BBH said that things could get complicated or delayed with regards to the progress towards a deeper Eurozone integration. “It may take weeks before political alliances are shaped and a centrist “super grand coalition” remains the most likely scenario,” analysts noted and added: “The centre-right European People’s Party (EPP) are still the parliament’s biggest group followed by the centre-left Socialists and Democrats (S&D), and the centrist Renew Europe (RE).”

The economic calendar will not offer any high-tier data releases on Monday and the risk perception could continue to drive EUR/USD’s action ahead of the US Consumer Price Index (CPI) data and the Federal Reserve’s (Fed) monetary policy announcements on Wednesday.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart dropped below 30, pointing to oversold conditions in the near term. In case EUR/USD stages a correction, 1.0790-1.0800 area, where the Fibonacci 38.2% retracement of the latest uptrend meets the 100-day and the 200-day Simple Moving Averages (SMA), could act as stiff resistance. If the pair rises above that level and confirms it as support, an extended recovery toward 1.0850 (static level, 100-period SMA on the 4-hour chart) could be seen.

On the downside, interim support seems to have formed at 1.0750 before 1.0730 (Fibonacci 61.8% retracement) and 1.0700 (psychological level, static level).

 

• Euro stays under heavy selling pressure at the beginning of the week.
• Political uncertainy following the European Parliament election weighs on sentiment.
• EUR/USD could extend its slide while 1.0790-1.0800 resistance area holds.

EUR/USD started the new week with a bearish gap and slumped to its weakest level in a month below 1.0750. The pair’s technical outlook points to oversold conditions but the Euro could have a difficult time staging a rebound in the current risk-averse market atmosphere.

The US Dollar (USD) capitalized on the strong jobs report on Friday and forced EUR/USD to erase its weekly gains. Nonfarm Payrolls in the US rose 272,000 in May. This print surpassed the market expectation of 185,000 and April’s increase of 165,000 by a wide margin. In turn, US Treasury bond yields surged higher ahead of the weekend and provided a boost to the USD.

Preliminary results of the European Parliament election triggered a flight to safety at the beginning of the week and caused the Euro to weaken against its rivals.

The European People’s Party became the clear winner, gaining 8 seats to secure a total of 184 seats in the European Parliament.

In France, National Rally won 31.5% of the vote against the Besoin d’Europe alliance’s – including President Macron’s Renaissance – 14.5%. French President Emmanuel Macron said that far-right parties in Europe were “progressing across the continent” and called for a snap election. Meanwhile, in Germany, Chancellor Olaf Scholz’s SPD became the third party behind the main opposition conservative party, CDU, which received 30% of the vote, and the far-right Alternative for Germany (AfD) party, which got nearly 16% of the vote.

Assessing the outcome of the European Parliament election, analysts BBH said that things could get complicated or delayed with regards to the progress towards a deeper Eurozone integration. “It may take weeks before political alliances are shaped and a centrist “super grand coalition” remains the most likely scenario,” analysts noted and added: “The centre-right European People’s Party (EPP) are still the parliament’s biggest group followed by the centre-left Socialists and Democrats (S&D), and the centrist Renew Europe (RE).”

The economic calendar will not offer any high-tier data releases on Monday and the risk perception could continue to drive EUR/USD’s action ahead of the US Consumer Price Index (CPI) data and the Federal Reserve’s (Fed) monetary policy announcements on Wednesday.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart dropped below 30, pointing to oversold conditions in the near term. In case EUR/USD stages a correction, 1.0790-1.0800 area, where the Fibonacci 38.2% retracement of the latest uptrend meets the 100-day and the 200-day Simple Moving Averages (SMA), could act as stiff resistance. If the pair rises above that level and confirms it as support, an extended recovery toward 1.0850 (static level, 100-period SMA on the 4-hour chart) could be seen.

On the downside, interim support seems to have formed at 1.0750 before 1.0730 (Fibonacci 61.8% retracement) and 1.0700 (psychological level, static level).

 

• GBP/USD continues to edge lower following Friday’s sharp decline.
• Sellers could remain interested if Pound Sterling drops below 1.2700.
• The technical outlook points to a buildup of bearish momentum.

GBP/USD stays on the back foot and continues to edge lower toward 1.2700 in the European session on Monday. The pair’s near-term technical outlook highlights a buildup of bearish momentum.

GBP/USD came under heavy bearish pressure on Friday and erased all of its weekly gains. The US Dollar (USD) capitalized on the upbeat labor market data and forced the pair to push lower as investors reassessed the probability of a Federal Reserve (Fed) rate cut in September.

The US Bureau of Labor Statistics reported that Nonfarm Payrolls rose 272,000 in May. This reading beat analysts’ estimate for an increase of 185,000 by a wide margin. Additionally, the annual wage inflation, as measured by the change in the Average Hourly Earnings, rose to 4.1% from 4% in April. According to the CME FedWatch Tool, the probability of the Fed leaving the policy rate unchanged in September rose slightly above 50% after the May jobs report from 40% earlier in the week.

On Tuesday, the UK’s Office for National Statistics will release labor market data. More importantly, the US economic docket will feature Consumer Price Index (CPI) data for May before the Fed announces monetary policy decisions and releases the revised Summary of Projections later in the day. Ahead of these events, the risk perception could drive GBP/USD’s action.

At the time of press, US stock index futures were down between 0.3% and 0.4%, suggesting that the USD could preserve its strength in the second half of the day with safe-haven flows dominating the markets.

GBP/USD Technical Analysis

GBP/USD dropped below the lower limit of the ascending regression channel and the Relative Strength Index (RSI) indicator on the 4-hour chart fell below 40, reflecting the bearish shift in the short-term outlook.

The Fibonacci 23.6% retracement level of the latest uptrend aligns as immediate support at 1.2700. In case GBP/USD falls below this level and starts using it as resistance, sellers could target 1.2640 (100-day Simple Moving Average (SMA) and the 200-period SMA on the 4-hour chart) ahead of 1.2600 (psychological level, static level).

On the upside, resistances could be seen at 1.2730 (lower limit of the ascending channel, 100-period SMA) and 1.2800 (mid-point of the ascending channel, psychological level, static level).

 

• GBP/USD continues to edge lower following Friday’s sharp decline.
• Sellers could remain interested if Pound Sterling drops below 1.2700.
• The technical outlook points to a buildup of bearish momentum.

GBP/USD stays on the back foot and continues to edge lower toward 1.2700 in the European session on Monday. The pair’s near-term technical outlook highlights a buildup of bearish momentum.

GBP/USD came under heavy bearish pressure on Friday and erased all of its weekly gains. The US Dollar (USD) capitalized on the upbeat labor market data and forced the pair to push lower as investors reassessed the probability of a Federal Reserve (Fed) rate cut in September.

The US Bureau of Labor Statistics reported that Nonfarm Payrolls rose 272,000 in May. This reading beat analysts’ estimate for an increase of 185,000 by a wide margin. Additionally, the annual wage inflation, as measured by the change in the Average Hourly Earnings, rose to 4.1% from 4% in April. According to the CME FedWatch Tool, the probability of the Fed leaving the policy rate unchanged in September rose slightly above 50% after the May jobs report from 40% earlier in the week.

On Tuesday, the UK’s Office for National Statistics will release labor market data. More importantly, the US economic docket will feature Consumer Price Index (CPI) data for May before the Fed announces monetary policy decisions and releases the revised Summary of Projections later in the day. Ahead of these events, the risk perception could drive GBP/USD’s action.

At the time of press, US stock index futures were down between 0.3% and 0.4%, suggesting that the USD could preserve its strength in the second half of the day with safe-haven flows dominating the markets.

GBP/USD Technical Analysis

GBP/USD dropped below the lower limit of the ascending regression channel and the Relative Strength Index (RSI) indicator on the 4-hour chart fell below 40, reflecting the bearish shift in the short-term outlook.

The Fibonacci 23.6% retracement level of the latest uptrend aligns as immediate support at 1.2700. In case GBP/USD falls below this level and starts using it as resistance, sellers could target 1.2640 (100-day Simple Moving Average (SMA) and the 200-period SMA on the 4-hour chart) ahead of 1.2600 (psychological level, static level).

On the upside, resistances could be seen at 1.2730 (lower limit of the ascending channel, 100-period SMA) and 1.2800 (mid-point of the ascending channel, psychological level, static level).

 

At the time of writing GBP/EUR was trading at around €1.1742. Virtually unchanged from last week’s opening levels, but down from a high of €1.1766.

The Euro (EUR) got off to a poor start last week, following the publication of the Eurozone’s latest manufacturing PMI.

While May’s index reported the factory sector saw its best month since March 2023, it still undermined the single currency as it confirmed the manufacturing sector remained in contraction.

Adding to the pressure on the Euro in the first half of the week was the release of Germany’s latest jobs report.

While Germany’s unemployment rate held steady in April, the total number of people out of work rose to its highest level since March 2021 – raising fresh concerns over the recovery in the Eurozone’s largest economy.

EUR exchange rates remained on the back foot in the middle of the week as growth in the Eurozone’s services sector was revised lower in May’s finalised services PMI.

However, the single currency was then able to mount a recovery in the second half of the week, as the European Central Bank (ECB) delivered its latest interest rate decision.

Following the conclusion of its first policy meeting of the summer, the ECB announced a widely expected 25bps rate cut.

However, as the rate cut had been widely priced in by markets the resulting movement in the Euro was driven primarily by the bank’s forward guidance.

This saw EUR exchange rates firm as the bank raised its inflation forecasts for 2024 and 2025 and was coy regarding the possibility of further rate cuts. A move which seemly reduced the odds of a follow up cut in July.

Mark Wall, chief European economist at Deutsche Bank, commented: ‘As expected, the ECB cut rates 25bp. But the statement arguably gave less guidance than might have been expected on what comes next.
‘In that sense, the immediate tone is a “hawkish cut”. This is not a central bank in a rush to ease policy.’

Pound (GBP) Buoyed by Positive Risk Flows

The Pound (GBP) initially firmed this week, with the currency being supported by confirmation that growth in the UK’s manufacturing sector struck a two-year high last month.

An optimistic market mood then helped the increasingly risk-sensitive Sterling to maintain a positive trajectory through the first half of the week.

GBP exchange rates then began to falter in the second half of the session following a survey from the Bank of England (BoE), which pointed to a likely fall in inflation over the coming year as UK businesses expected to deliver lower wage increases over the next 12 months.

GBP/EUR Exchange Rate Forecast: Signs of a Slowing UK Labour Market to Weigh on Sterling?

Looking ahead, the UK’s latest jobs report is likely to act as a key catalyst of movement for the Pound Euro exchange rate this week.

This could lead to a pullback in Sterling if further signs of a cooling labour market and slowing wage growth stoke BoE rate cut bets. On the other hand, the Pound may firm if April’s figures outpace expectations.

Also potentially influencing GBP exchange rates will be UK election jitters, on the assumption that the main political parties will soon release their manifestos.

For EUR investors the only Eurozone data of note next week will be the bloc’s latest industrial production figures. Will a forecast rise in Eurozone factory output help to lift the single currency?

On Friday (June 7), the US Jobs Report came in hotter than expected, sending the USD/JPY back toward 157. The US CPI Report could force the BoJ to hold more meaningful discussions on ways to bolster the Japanese Yen.

US Economic Calendar: US CPI Report and the FOMC Projections Loom

Investors should consider the looming US CPI Report. After better-than-expected labor market data on Friday, sticky inflation figures could give the FOMC hawks a stronger case to keep interest rates steady in 2024.

Average hourly earnings increased 4.1% year-on-year in May after rising 3.9% in April. Higher wages could increase disposable income. Upward trends in disposable income could fuel consumer spending and demand-driven inflation.

A higher-for-longer Fed rate path could raise borrowing costs and reduce disposable income.

Economists expect the Fed to leave interest rates at 5.50% on Wednesday. However, hopes of a September Fed rate hike remain despite the US Jobs Report.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on the US CPI Report, the Fed, and the Bank of Japan. More hawkish FOMC economic projections could tilt monetary policy divergence toward the US dollar. However, a USD/JPY move toward 160 could incentivize the BoJ to start rate hike discussions.

USD/JPY Price Action

Daily Chart

The USD/JPY held above the 50-day and 200-day EMAs, sending bullish price trends.

A USD/JPY return to 157 could give the bulls a run at the 158 level. If the USD/JPY returns to the 158 handle, the April 29 high of 160.209 would come into play.

Bank of Japan commentary needs consideration after the Q1 2024 GDP Report.

Conversely, a USD/JPY fall through the 50-day EMA could signal a drop toward the 151.685 support level.

The 14-day RSI at 55.31 suggests a USD/JPY return to the April 29 high of 160.209 before entering overbought territory.

GBP/JPY Forecast Video for 26.05.23

British Pound vs Japanese Yen Technical Analysis

The British pound has fallen initially against the Japanese yen during the trading session on Thursday, and it looks as if we are going to continue to see pressure to the upside and it looks like if we can break above the area here at the ¥172.50 level, it’s likely that we go looking for the ¥175 level after that. The ¥175 level of course is a large, round, psychologically significant figure, and therefore one would assume that there is going to be a certain amount of reaction to that region.

On the downside, I believe that the ¥170 level offers a lot of support, as it is a large, round, psychologically significant figure and an area that we see some action at in the past. For the short term trading situation, I believe that the ¥170 level underneath is a significant short-term “floor in the market.” The market will continue to see more of this “buy on the dip” mentality, therefore I think we’ve got a situation where you can only be long of this market, and shorting it is all but impossible.

Keep in mind that the interest rate differential between the 2 currencies is rather drastic, and that of course will drive a lot of money toward the British pound for the “carry trade” that is now back in vogue. It’s worth noting that we broke through the top of the most recent significant pullback, so now we are just simply building up the pressure to go to the outside.

Expect a lot of volatility, but that’s nothing new for this pair. The pair does tend to be very noisy and therefore you have to be cautious with your position sizing and recognize that you may have to ride out a significant amount of volatility. Nonetheless, I do think that we get to the ¥175 level sooner rather than later, therefore I look at this market as a lot like a beach ball being held under water, in the sense that once it breaks above the resistance, it will pop straight up in the air.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

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June 9, 2024 – Written by Frank Davies

STORY LINK EUR/USD Forecast, News: US Data Derails the Euro Exchange Rates

MUFG forecasts that the Euro to Dollar (EUR/USD) exchange rate will strengthen to 1.12 by March 2025.

Barclays, however, is still expecting a retreat to the 1.05-1.06 area this year.

EUR/USD was resilient after the ECB rate cut, but posted sharp losses after stronger than expected US employment data with a slide to near 1.08 from 1.09.

US non-farm payrolls increased 272,000 for May, much higher than consensus forecasts of around 180,000 with a small downward revision for April to 165,000 from 175,000.

The household survey was weaker as the unemployment rate increased to a 2-year high of 4.0% compared with expectations of no change at 3.9%.

The survey also reported a decline in employment of over 400,000 for the month.

Average earnings increased 0.4% compared with forecasts of 0.3% with a year-on-year increase of 4.1%, above expectations of 3.9%.

The wages and payrolls data sparked renewed inflation fears and fresh doubts over Federal Reserve rate cuts. According to markets, the chances of September cut dipped to near 50%.

Jane Foley, head of FX strategy at Rabobank sees limited scope for dollar losses; “We think U.S. inflation could be picking up again by the middle of the year and the Fed easing cycle could be really very short, almost irrespective of when it does commence.”

She added; “That means even though the dollar will give back some ground, when the Fed starts to cut, the dollar is likely to remain relatively firm. It’s not going to give back an awful lot of this year’s gains and it’s going to remain overvalued.”

MUFG is still sceptical over the US currency; “In recent months we have highlighted the scope for a period of decline in EUR/USD but we are now becoming more confident that window may have closed and see increasing upside risks for EUR/USD. Macro conditions are more favourable, the euro-zone external position has improved and we do not see scope for divergence and continue to see a similar trajectory for monetary policy for the ECB & the Fed.”

According to BNP, the dollar will maintain pole position; “For the USD to weaken, we believe we would need to see a significant deterioration in the US labour market, eurozone data surprising to the upside or Joe Biden gaining a substantial lead in the polls ahead of the US election.”

BNP commented; “while PMIs indicate that momentum in the eurozone is positive, the absolute growth differential against the US remains wide.”

CIBC added; “Although we are revising down our USD forecast slightly for some pairs on domestic stories, we continue to see USD dips as buying opportunities into the next quarter.”

The bank does expect that the dynamic will shift eventually; “over the medium term, this dynamic should flip, as highly rate sensitive economies process higher rates more quickly and rate cuts are realized. At this point, US data may begin to underperform relative to the other G10s, and the USD should come off as a result. We’re expecting this dynamic to be a story for 2025.”

Barclays looks at the global dimension; “the news and data flow from China is not living up to bulled-up expectations, as evidenced in May’s official PMIs across Manufacturing and Construction. Along with lingering geopolitical and US election risks, this points to further underperformance for EURUSD.”

The ECB cut all interest rates by 25 basis points at the latest meeting with the refi rate lowered to 4.25% from 4.50%.

The ECB was still relatively cautious over the inflation outlook with the 2025 forecast above the 2.0% target and suggested that there would not be another near-term cut, although it did not provide clear guidance on the outlook.

According to MUFG; “We see nothing in today’s announcement to alter our view of an easing cycle aligned with cuts taking place at each forecast meeting and hence expect the next cut to come at the meeting on 12th September.”

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