The EUR/USD pair executed a reversal in favor of the US currency on Friday and began a new decline, closing below the corrective level of 38.2% (1.0726). Thus, the overall decline of the pair may continue toward the next Fibonacci level at 23.6% (1.0652). A rebound from the level of 1.0652 will favor the euro and lead to some growth, while a close below it will increase the likelihood of a further decline toward the level of 1.0609.
On Friday, traders closely followed the US reports. There were many important events throughout the past week, but the labor market and unemployment data always held a special place in the hearts of traders. Without going into much detail, the statistics favored the bears, but the two most important reports showed different trends. The unemployment rate for May increased from 3.4% to 3.7%, although traders expected a rise to 3.5%. Meanwhile, nonfarm payrolls in May showed a result of +339K, exceeding expectations of +180K. Thus, the unemployment rate turned out worse, but the payrolls were better. Traders concluded that the payroll report was more important (and I fully agree with them), so the dollar rose in price again.
The US currency should continue to rise, as all recent statistical data indicates a good state of the American economy. The Federal Reserve (Fed) continues to maintain a "hawkish" position, and even after raising the interest rate to 5.25%, the economy continues to show growth, unemployment remains low, and the labor market creates more jobs almost every month than the market expects. These are compelling reasons for further dollar appreciation, as it has significantly lost value over the past year. On higher charts, there is a corrective potential towards the level of 1.03.
On the 4-hour chart, the pair reversed in favor of the euro, but the growth was short-lived. The quote decline may resume toward the corrective level of 38.2% (1.0610). A rebound of the pair's rate from this level will allow traders to expect a small increase toward the Fibonacci level of 50.0% (1.0941). If the quotes close below the level of 1.0610, the chances of further decline toward the Fibonacci level of 23.6% (1.0201) will increase.
Commitments of Traders (COT) report:
During the last reporting week, speculators closed 8,253 long and 242 short contracts. The sentiment of large traders remains "bullish" but has slightly weakened in recent weeks. The total number of long contracts speculators hold is 242,000, while short contracts amount to only 76,000. For now, strong bullish sentiment persists, but the situation will continue to change soon. The euro has been falling for two consecutive weeks. The high value of open long contracts suggests that buyers may close them soon (or may have already started, as indicated by the last two COT reports). There is currently an excessive tilt towards the bulls. The current figures allow for a continuation of the euro's decline soon.
News calendar for the United States and the European Union:
Eurozone - Services Purchasing Managers' Index (08:00 UTC).
USA - Services Purchasing Managers' Index (PMI) (13:45 UTC).
USA - Industrial Orders Volume (14:00 UTC).
USA - ISM Non-Manufacturing Purchasing Managers' Index (PMI) (14:00 UTC).
On June 5, the economic events calendar includes three entries for the USA and one for the EU. The most important among them is the ISM index. The impact of the news background on traders' sentiment today may be moderate and occur in the second half of the day.
Forecast for EUR/USD and trader advice:
New pair sales could be opened on a breakout from the level of 1.0785 on the hourly chart, with targets at 1.0726 and 1.0652. I advise buying the pair on a breakout from the level of 1.0610 on the 4-hour chart, with targets at 1.0726 and 1.0784.