EUR/USD is still trading sideways inside 1.1850 – 1.1970 where the lower border corresponds to the lower line of the Bollinger Bands indicator in a daily chart. The upper border matches the lower border of the Kumo cloud in the same timeframe. Last Friday, the EUR/USD buyers tested the ceiling of the trading range. However, they failed to overcome resistance in line with expectations. So, the price returned to near 1.19 on the same day.
This week, the bears are still setting the tone, trying to push the price towards the lower border of the above-said range. Notably, the pair's dynamic today comes as a result of the US dollar's reinforcement. Indeed, the US dollar index follows yields of US benchmark 10-year Treasuries, responding to the news from Capitol Hill. For your reference, the US President stated that Democratic and Republican senators had reached a compromise on the infrastructure bill. The final variant of the bill has been cut in spending. The new package is now estimated at $973 billion that is to be spent in 5 years. $1,250 trillion will be provided in 8 years. The original proposal by Joe Biden was worth $3 trillion.
Despite some disappointment with the reduced bill, this information is beneficial for the greenback. This positive influence could be short-lived. So, traders will shift focus towards other fundamental factors in the near future. The US nonfarm payrolls are on investors' radars on Friday. Meanwhile, dollar bulls are setting their rules. They found support from Thomas Barkin, the Federal Reserve Bank of Richmond President. His comments revealed the hawkish rhetoric. The policymaker again turned attention to extraordinary inflation acceleration and a steady economic recovery in the US. In light of these trends, he suggested that the regulator could be ready to scale down QE program on condition that there is notable progress in employment.
Importantly, such remarks came just a few days before the publication of the nonfarm payrolls for May. The fresh data is expected to cement the hawkish sentiment in the ranks of the Fed's policymakers. Analysts project the unemployment rate to edge down to 5.6%. Besides, the US economy could have added 650K new jobs.
The US currency found extra support from the US consumer confidence index released today. It rests on the survey of households about their confidence in current economic conditions and a future economic situation. The index has been growing for 7 months in a row. Today it has hit a multi-year high, standing at 127 points. The score came in beyond market expectations. Experts had projected the indictor at 118.
Such fundamental background gave a fresh impetus to the bulls' strength. However, the buyers of EUR/USD managed to subdue the downward momentum in light of inflation data from Germany. German CPI encouraged the euro traders with upbeat data despite ongoing restrictions on businesses. In annual terms, the CPI climbed to 2.3%, stronger than the expected increase to 2.2%. The CPI rose 0.4%, matching expectations. Likewise, the HICP came in line with the forecast both on month and on year. Commonly, Germany's economic data correlates to the pan-European indicators.
This is not the only factor to prop up the euro. Earlier, the IFO economic sentiment index for Germany surpassed the level of 100 for the first time since February 2018. Moreover, the business climate index also topped this psychological mark. The PMIs were also bullish for the single European currency. The PMIs for Germany, France, Italy, and the whole euro area were in the green, thus showcasing a recovery both in the manufacturing and service sector.
On the one hand, such a controversial background does not allow EUR/USD to escape from a trading range. On the other hand, the pair is trading inside the clearly defined range of 1.1850 to 1.1970. Ahead of the US nonfarm payrolls, traders will hardly take a risk of opening large bets on the greenback and against it. Indeed, the government data on the labor market is of major importance. The euro, in turn, is giving in to the US dollar. In terms of technical analysis, trend indicators are still silent. In the daily chart, EUR/USD is trading below the Kumo cloud but on the Tenkan-sen line. Looking at the weekly chart, we see that the price has tightly approached the upper border of the Kumo cloud (1.1860). This all suggests that when the pair approaches levels around 1.1850, i.e. the lower border of the above-said trading range, it would be a good idea to plan long positions towards 1.1900 and 1.1950.
*Prezentowana analiza rynku ma charakter informacyjny i nie jest przewodnikiem po transakcji.
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