The macro data arriving from the United States knocked out the euro which lost over 0.8% in the last session of the week. What could be the most likely scenario for the next few weeks?
The macro data published during the week and which impacted the exchange rate trend
EUR/USD fell from 1.0900 to around 1.0820 during Friday’s session in New York, following the release of the US Nonfarm Payrolls (NFP) report for May. The report showed that job demand and wage growth were higher than expectations, with 272,000 new jobs created compared to forecasts of 185,000 and 165,000 the previous month. However, the unemployment rate rose to 4.0% from 3.9%.
The higher-than-expected number of new jobs has reduced doubts about labor demand, despite recent indicators suggesting an easing in the labor market. Additionally, average hourly earnings, a measure of wage inflation, grew 4.1% year over year, above expectations of 3.9%. On a monthly basis, growth was 0.4%, higher than forecasts of 0.3%.
This report lowered market expectations for a possible rate cut by the Federal Reserve in September, with the probability of a cut falling to 54.4% from 68% according to the CME FedWatch Tool.
On the European front, the euro weakened after the European Central Bank (ECB) cut interest rates by 25 basis points, as expected, marking the first cut since 2019. However, the ECB did not commit to a default path for interest rates, with President Christine Lagarde underlining that the fight against inflation is still ongoing and that price pressures are likely to remain at current levels throughout the year. The ECB’s inflation projections indicate annual core inflation of 2.8% in 2024, 2.2% in 2025 and 2.0% in 2026, slightly higher than previous forecasts.
The indications of the graphic analysis
The phase of uncertainty on the euro-dollar exchange rate continues. With a weekly close above 1.0865, a bullish reversal could have materialized which could develop according to the scenario indicated in the figure by the dotted line. Bears, however, could find strength from a weekly close below 1.0628. In this decline, the decline could develop according to the scenario indicated in the figure by the solid line.
Recommended reading
The ongoing lateral phase on the oil price chart continues
