Ambiguous report on the US labour market, published on Friday, led to a sharp drop in the US dollar. The US Department of Labour reported a drop in unemployment to 4.3%, the lowest level in 16 years. However, market participants were disappointed with other details of the employment report. So, the number of jobs outside of US agriculture in May increased by 138,000 compared to April (the forecast was +184,000).
The dollar fell even though the probability of a rate hike in the US at the Fed meeting on June 13-14 is still over 90%. The yield on 10-year US Treasury bonds fell to 2.159% on Friday from 2.217% on Thursday, reaching a low since November 10.
Patrick Harker, president of the Federal Reserve Bank of Philadelphia, after publishing data on the US labour market on Friday said that this recent US economic data did not make him question the prospects for further interest rate increases this year. Harker said that "given the good state of the economy," he still considers it "appropriate in 2017 to raise interest rates two more times, each time by 25 basis points."
Against the backdrop of a sharp fall in the dollar, the pair EUR/USD closed the previous week near the level of 1.1275. The daily growth was more than 0.5%. With the opening of today's trading day, the pair EUR/USD is declining. Nevertheless, the dollar continues to remain under pressure.
On Thursday, the ECB's regular meeting on monetary policy will take place. It is expected that the ECB will leave the current monetary policy in the region unchanged. However, market participants believe that the ECB may hint at the curtailment of incentive measures later this year or early next year. This will contribute to the growth of the euro.
It is possible that the ECB will point out that the risks for the eurozone prospects have become more balanced and that the deflationary risks no longer threaten the economy. Thus, the ECB may signal on Thursday to abandon its propensity for an extra soft policy, which will cause the euro to rise.
If the ECB does not receive signals of this kind, then the EUR/USD pair will decrease.
The pair remains positive and continues to rise in the up-link on the daily chart. Technical indicators on the daily, weekly, monthly charts are still on the buyers’ side.
At the same time, the EUR/USD has reached an important resistance level of 1.1280 (Fibonacci level of 23.8% of corrective growth from the minimums reached in February 2015 in the last wave of global decline of the pair from the level of 1.3900). Now the nearest target is level 1.1340 (144-period moving average on the weekly chart).
If the ECB receives signals on Thursday to close the QE program in the eurozone, the resistance level 1.1340 will be passed.
Conversely, the soft ECB rhetoric can trigger the closure of long positions in the EUR/USD pair, and market participants will begin preparations for the Fed meeting, which will be held on June 13-14. It is widely expected that the Fed will raise the rates by 0.25%.
Support levels: 1.1245, 1.1205, 1.1185, 1.1155, 1.1120, 1.1100, 1.1020, 1.1000, 1.0950, 1.0875
Resistance levels: 1.1280, 1.1340
Trading recommendations
Sell Stop 1.1250. Stop-Loss 1.1285. Take-Profit 1.1205, 1.1185, 1.1155, 1.1120, 1.1100, 1.1020, 1.1000, 1.0950, 1.0875
Buy Stop 1.1285. Stop-Loss 1.1205. Take-Profit 1.1300, 1.1340
