EUR/USD Daily Forecast – Euro Falls Below 1.1300 Handle as Risk Assets Slump

Equity markets fell under pressure in early trading on Tuesday, leading to a bounce in the dollar and a further decline in EUR/USD which peaked ahead of the 1.1400 price point on Friday.

The rally in the S&P 500 quickly reached overbought levels following Friday’s US jobs report and there may be some position squaring ahead of tomorrow’s Fed meeting.

The US dollar index (DXY) found buyers near Friday’s low earlier today but continues to hold within a range. The greenback has gained against all the major currencies in early trading today except for the Swiss franc and Japanese yen.

The Fed’s reaction to Friday’s jobs report will be important as several policymakers offered bleak outlooks towards the labor markets last month. Friday’s report surprised market participants with 2.5 million new jobs added in the US during May while analysts had forecast a loss of 7.75 million.

Similar to the S&P 500, EUR/USD also reached overbought territory late last week, specifically when looking at the 4-hour and daily chart. This could lead to a further correction although there have not been any clear indicators that the pair has topped at this point.

Technical Analysis

EUR/USD is retreating after testing its 200 moving average on a weekly chart. The same indicator held the pair lower on the rally in March.

As mentioned, technical indicators show that the pair is stretched, and vulnerable to further a further pullback. However, the upward momentum since mid-May has been strong which stands to keep the pair bought on near-term dips, at least ahead of the Fed meeting.

For the session ahead, upside resistance is seen at 1.1291. The level has been relevant on a daily and weekly chart in the past and served to hold the pair higher since Friday ahead of today’s breakdown.

Support for the pair is seen at 1.1232, and considering the recent upward momentum, buyers are likely to defend the level. In the event the pair breaks below it, the next level of downside interest falls at 1.1176.

Bottom Line

• EUR/USD is edging lower as technical indicators show moves in the dollar and the S&P 500 are overextended.
• Wednesday’s Fed meeting stands to set the tone for risk sentiment. Dollar fluctuations may be limited ahead of it.

For a look at all of today’s economic events, check out our economic calendar.