Euro Short-term Outlook: EUR/USD Breaks Key Support After NFP Shock

Euro Technical Outlook: EUR/USD Short-term Trade Levels

• EUR/USD has broken below a major support zone following a stronger-than-expected U.S. jobs report.
• The breakdown keeps the April downtrend intact, and signal further downside risk – weekly close to confirm.
• Recovery attempts are likely to face resistance while below former support levels.
• Key event risk next week with U.S. CPI and the ECB rate decision on tap.
• Resistance 1.1578/98 (key), 1.1659, 1.1680/86- Support ~1.1540s, 1.1483/97 (key), 1.1405/17

EUR/USD is under renewed pressure after breaking below a key support zone in the wake of a stronger-than-expected U.S. Non-Farm Payrolls report today. The move reinforces the broader downtrend that has been in place since the April highs and shifts focus to whether sellers can secure a weekly close below support. With downside momentum building and key inflation data on tap next week, the breakdown could mark the start of another leg lower if confirmed into the close. Battle lines drawn on the Euro short-term technical charts.

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Euro Price Chart – EUR/USD Daily

Chart Prepared by Michael Boutros, Sr. Technical Strategist; EUR/USD on TradingView

Technical Outlook: In last month’s Euro Short-term Technical Outlook we noted that EUR/USD was approaching pivotal, “support at the multi-week downtrend. From a trading standpoint, look to reduce portions of short-exposure / lower protective stops on a stretch towards 1.16- rallies should be limited to 1.1681 IF price is heading lower on this stretch with a close below 1.1587 needed to fuel the next major leg of the decline.” Euro rebounded nearly 1% off this support zone into the close of May with price briefly registering an intraday high at 1.1686 before reversing sharply lower. The bears are attempting to break lower today on the heels of a stronger-than-expected U.S. Non-Farm Payrolls report and the focus is on the weekly close to validate the breakdown.

Euro Price Chart – EUR/USD 240min

Chart Prepared by Michael Boutros, Sr. Technical Strategist; EUR/USD on TradingView

Notes: A closer look at Euro price action shows EUR/USD continuing to trade within the confines of a descending pitchfork extending off the April / May highs. A break below the pivotal support today threatens downtrend resumption with the decline already approaching initial support at the lower parallel, currently near ~1.1540s. The next major technical consideration rests at 1.1483/97- a region defined by the 1.618% extension, the March 2020 & 2022 highs, and the November low-day close (LDC). Look for a larger reaction there IF reached with losses beyond this level exposing the July low close / 2026 low-day close (LDC) at 1.1405/17.

Look for initial resistance back at the 1.1578/98- a region defined by the 61.8% retracement of the March advance and the January low-close. Subsequent resistance is eyed at the objective monthly open at 1.1659 with broader bearish invalidation set to the 200-day moving average near last week’s high at 1.1680/86. Note that this zone converges on the upper parallel next week and a breach / daily close above this slope would be needed to suggest a more significant low is in place and a larger trend reversal is underway.

 

Bottom line: Euro has broken below pivotal support and keeps the April downtrend in focus early in the month. From a trading standpoint, rallies should be limited to the 1.16-handle IF price is heading lower on this stretch with a close below the lower parallel needed to fuel the next major leg of the decline.

Keep in mind we get the release of key U.S. inflation data next week with the May Consumer Price Index on tap Wednesday. The European Central Bank is widely expected to raise interest rates by 25 basis points next week as the committee combats rising inflationary pressures that have been fueled by the ongoing war in Iran. Stay nimble into the releases next week and watch the weekly closes for guidance here. Review my latest Euro Technical Forecast for a closer look at the longer-term EUR/USD trade levels.

Key EUR/USD Economic Data Releases

Economic Calendar - latest economic developments and upcoming event risk.

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--- Written by Michael Boutros, Senior Technical Strategist

Follow Michael on Twitter @MBForex