EUR/USD Forex Technical Analysis – Sellers Targeting 1.0571 – 1.0519 Retracement Zone

The Euro is nearly flat against the U.S. Dollar early Thursday after plunging the previous session to its lowest level since May 23. The single-currency is edging further away from a monthly high reached on May 30 as higher Treasury yields and global inflation worries lift the greenback.

At 04:29 GMT, the EUR/USD is trading 1.0654, up 0.0002 or +0.02%. On Wednesday, the Invesco CurrencyShares Euro Trust ETF (FXE) settled at $98.61, down $0.74 or -0.74%.

Euro Region PMI Slows

In Euro Zone economic news, manufacturing growth in the region slowed last month as factories faced supply shortages, high prices and a fall in demand, according to a survey which suggested consumers were switching their spending to tourism and recreation. Earlier in the week, a report showed Euro Zone inflation rose to a record high of 8.1% in May.

“Euro area manufacturers continue to struggle against the headwinds of supply shortages, elevated inflationary pressures and weakening demand amid rising uncertainty about the economic outlook,” Chris Williamson, chief business economist at S&P Global.

Weakening Economy, Rising Inflation Poses Major Problem for ECB

The price action suggests investors are worried about inflation and slowing growth, which could pose problems for the European Central Bank (ECB) and its plans to begin raising interest rates as early as July.

The ECB has to raise rates in order to slow down the rise in inflation. At the same time, the move could slow down already slowing economic growth. If the ECB presses too hard, the Euro Zone economy could contract too much, too fast and cause recession. This would weaken the Euro.

Looking Ahead…

On Thursday, the focus will shift to U.S. economic reports, especially ADP Non-Farm Employment Change data. It is expected to show the private sector of the economy added 210K jobs in May, matching the previous month. Other job-related reports include Challenger Job Cuts and Weekly Unemployment Change.

The Fed is trying to slow down inflation without harming the solid labor market. These three reports will offer insight as to whether the jobs market is holding steady, or if it is weakening. This could have an impact on interest rates, the U.S. Dollar and how aggressive the Fed can be with monetary policy in the near future.

Short-Term Technical Outlook

The main trend is up, but the EUR/USD looks like it is in corrective mode.

The short-term range is 1.0354 to 1.0787. Its 50% to 61.8% retracement zone at 1.0571 to 1.0519 is the primary downside target of this current break. Since the main trend is up, buyers could come in on the first test of this area.