Euro Price Outlook: EUR/USD Coiling into NFP

Euro Price Outlook:

• There was a quick rush of fear as stocks dropped and the US Dollar surged after this morning’s ADP release showing a robust labor market in the US. But that topic is back in the spotlight tomorrow with the release of Non-farm Payrolls for the month of June.
• The first half of the year was consolidation as both the US Dollar and EUR/USD remained within relatively tight ranges, especially considering the trends that were flying in 2021 and 2022.
• I’ll be discussing these themes in-depth in the weekly webinar on Tuesday at 1PM ET. It’s free for all to register: Click here to register.

EUR/USD price action continues to narrow. And while this statement has some relevance for the past six months, where EUR/USD didn’t show much for trends after the 2023 open, the range has narrowed even further, with a number of key levels on either side of the matter.

From the four hour chart below we can see a short-term symmetrical wedge, which saw a resistance test at the upper trendline earlier this morning just before the release of ADP numbers. That print came out far beyond expectations, raising fears of a more-hawkish Fed, which spoke to another similar theme that I had looked at yesterday regarding the US Dollar, as the 10 year note saw yields trade with a 4-handle for the first time since March 9^th.

EUR/USD Four-Hour Chart

That’s when the banking crisis came into the equation, along with the hope that banking fragility might cause the Fed to step back from rate hikes, which helped to launch stocks and step on yields. Stocks remain very near highs so that enthusiasm hasn’t yet wanted, but yields have come roaring back and the big question now is whether we’ll see similar responses in equities and the US Dollar as we did in Q1.

This has relevance in EUR/USD, as well, as the thought that the Fed might step back from hikes helped to boost the single currency, as the ECB remained vocally hawkish. On March 9^th, around the time that US banking took over the headlines, EUR/USD was testing range support around the 1.0500 handle. Less than a month later it was trading over 1.1000, but that’s around the time that range resistance came into play to hold the advance, which leads to our six months of consolidation.

EUR/USD Daily Chart

EUR/USD Ahead of NFP

When the market gives ranges it’s often best to work with what’s there. And there are a number of levels both above and below current price action that can keep the door open to working with mean reversion strategies.

For resistance, the 1.0900 level was in-play again today, after which the 1.0930-1.0943 zone retains relevance. Above that, we have longer-term range resistance between 1.1000 and 1.1100 and there’s a few different specific prices within that block that could be picked on.

Support has remained around the 1.0843-1.0864 zone that I’ve been talking about, so sellers will have to rectify that first before any deeper downside breaks. That zone has been tested with increasing frequency, including again this morning after that resistance run from the trendline looked at above. Below that zone is another price swing around 1.0787, after which 1.0733-1.0740 comes into the picture. The current three-month-low is at a big spot of 1.0636, which was the swing low from 2020 that came in to set support on the final day of trade in May.

That’s the big spot for sellers to encounter before the prospect of bearish trends comes back into the picture; and even then, sellers will have to contend with the psychological level around 1.0500 that was in-play earlier this year.

EUR/USD Two-Hour Chart

--- written by James Stanley, Senior Strategist