A lot of experts associate the US dollar's total weakening with the declining American US labor market. According to analysts, the revival of the acceptable level of employment in the country will give the USD the opportunity to increase.
The US currency, which has recently lost its growth impulse, has a chance to strengthen if the US labor market makes a strong recovery. However, this process is long-term and currently, the dynamics of both the employment market and the US dollar, is near the negative zone. The negative mood in America's labor market was agitated by extremely disappointing macro statistics. It can be recalled that in April 2021, the US unemployment rate noticeably rose, although experts expected an increase in the number of new jobs to 1 million (outside agriculture). However, the growth turned out to be no more than 266 thousand. Experts agree that these are disappointing indicators, which are far behind the previous calculations.
The current situation contributes to the decline in the US dollar and the growth of pessimistic sentiments in the market. At the same time, analysts are confident that an increase in the unemployment rate does not mean a deterioration in the state of the economy, that is, the current negative process is reversible. The surprising macro statistics pushed the dollar down, but could not fully drop it.
The Fed's current monetary policy is important for the further dynamics of the USD. The current state of the US economy is closely monitored by the regulator, although it does not cause much concern. Earlier, Fed Chairman Jerome Powell highlighted that the recovery of the labor market in the country is important for the agency, and fiscal incentives can be curtailed only after reaching high indicators. However, the current situation shows that the American economy is recovering not too rapidly, and the curtailment of incentives is early.
Based on the observations of analysts, the strongest lag in the US labor market data contributed to high demand for risky assets and a simultaneous weakening of the US currency. The market recorded repeated attempts to escape into gold, safe-haven currencies, stocks and bonds of stock exchanges, but not into the dollar. Investors carefully avoided the greenback, fearing unexpected surprises on its part.
At the same time, major market players have increased their net position to buy the EUR/USD pair. This trend appears for four weeks in a row. It can be noted that last Friday, May 7, the EUR/USD pair was dominated by bullish sentiment. Many traders actively increased their net position on the growth of the euro. On the morning of May 10, the EUR/USD pair was trading at the level of 1.2161, occasionally rising higher.
At the end of the previous week, the EUR/USD pair rushed to the upper border of the level of 1.2100 amid declining US bond yields and the sharp collapse of the US dollar. The bulls tried to break through highs, but they always failed. On Monday morning, the main currency pair showed an increase in bearish mood. Experts believe that the consolidation of the "bullish" scenario is possible if there will be a breakdown of the strong resistance level of 1.2167.
Many analysts note the growth of "bearish" sentiment in the US currency. Over the past three weeks, traders have been reducing their net position for USD growth from the levels that were the highest in the last 11 months. In addition, large funds have reduced the volume of purchases of the dollar by 8% during the past week. If this trend strengthens, experts are confident that the US currency will continue to move down.
However, market participants do not lose hope for the recovery of the American economy and its national currency. Analysts said that the current macroeconomic data is not so terrible as to doubt the further recovery of the US economy.
In this situation, experts expect the EUR/USD pair to rise to the level of 1.2200 and above, namely to 1.2400. This is facilitated by the recovery impulses in the US and European economies, which provoke an increase in risk appetite, as well as a slowdown in the growth of yields on US government debt. If the treasury state bonds this month prove to be resistant to the dollar's fall, experts conclude that this instrument will manage to surge to new annual highs.