Euro and Pound Struggle to Gain Momentum as USD Rises

Forex Market Analysis: EURUSD and GBPUSD

EURUSD and GBPUSD struggled at the beginning of the week, with the US Dollar showing strength and preventing upward movements for the Euro and Pound following Friday’s decline.

Despite strong US jobs data, market expectations for the US Federal Reserve’s June meeting have become more dovish, with a 70% probability of a pause from the Fed. This adjustment may be due to rising unemployment and signs of a slowdown in wage growth.

In Euro Area news, German exports rebounded in April after a slump in March. However, the German export sector still faces obstacles such as supply chain issues, China’s uneven recovery, and lower imports from China. The Sentix Economic Index also indicated a continued decline in the Euro Area, with Germany being seen as the “problem child” and the probability of a recession in Europe’s most industrialized economy increasing.

The economic data releases for the day are expected to be largely uneventful, with the US ISM Services PMI data being the main risk event. Without significant results from the US service sector, it is unlikely that there will be significant changes in the probabilities of a rate hike in June. The US CPI data next week will likely provide more clarity.

In terms of EURUSD, the pair is currently trading around a key support area of 1.0680-1.0700. Last week’s candle closed as a doji at the support level, indicating the potential for a recovery towards the 1.0800 handle this week. However, the stronger US dollar has kept any attempted upside moves in check. Smaller timeframes do not provide clear indications of the pair’s next move, but a retracement to the upside is a possibility. A daily close below the 1.0680 support level would invalidate the bullish bias and could lead to a quick decline towards 1.0600.

GBPUSD had a strong rally last week but encountered resistance at the 1.2500 level. The pair has continued to move lower, now targeting a retest of immediate support around 1.2350. It is worth noting that the pair has yet to test the 100-day MA, and a break below the 1.2350 support level could lead to a retest of the MA and potential support around 1.2200.

On the other hand, a bounce from the current levels could bring the 50-day MA into play around 1.2450, with the psychological level of 1.2500 as the next key resistance. Given the lack of significant UK data this week, movements in GBPUSD may be largely influenced by the US dollar, so monitoring developments in the DXY index could provide insights into the pair’s next move.

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