Daily Market Recap – EURUSD Euro almost stable against the dollar as traders await NFP

The EURUSD is moving without a clear direction in the short term, hovering in a range between 1.2250 and 1.2160 after having climbed back to its February high in mid-May.

Forex traders are split between recent US inflation data coming in well above expectations and positive economic surprises in the Eurozone. The EURUSD is also supported by an improved economic outlook in the Eurozone thanks to the sharp acceleration of the vaccination campaign since April.

Yesterday's PMI releases failed to give the market a clear direction, but this could be the case with the NFP on Friday as the evolution of the labor market will be the keystone of the Fed's monetary policy.

Indeed, the Fed's policy now depends primarily on the labor data. The Fed will be more tolerant of inflation if the labor market is not at its peak, which is currently the case.

According to NFP figures, another 8 million Americans had not returned to their pre-pandemic jobs. The sooner the job market returns to its pre-crisis level, the sooner the Fed will normalize its monetary policy.

The first step will probably begin early next year and will be to reduce the number of its asset purchases, currently $120 billion per month. In the second stage, the Fed will probably try to reduce the size of its balance sheet, currently at $8 trillion, before proceeding with its first rate hike.

The consensus is for 650,000 new jobs in May, up from 266,000 in April. The unemployment rate is expected to be 5.9% compared to 6.1% in April.

While waiting for the monthly employment report on Friday, the market will hear the Fed's Beige Book this evening and the PMI for the services sector on Thursday.

From a technical perspective, the outlook for EURUSD continues to be bullish as long as the exchange rate does not break through major support (the highs and lows are still getting higher).

The evolution of the EURUSD in its range between 1.2160 and 1.2250 will be crucial. An upside exit would strengthen the bullish outlook and pave the way for a continuation to the January high at 1.2350. Conversely, a downside exit would open the way for a correction. A return to the mid-May low at 1.2050 would be expected.

(Chart Source: Tradingview 02.06.2021)

Note the presence of the EURUSD in an ascending wedge for several weeks. A breakout from the bottom would be the first technical signal that buyers are running out of steam. The EURUSD is currently testing the lower bound of this wedge.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.