Forex Analysis & Reviews: 01.06.2023 - EUR/USD: technical analysis...

01.06.2023 03:23 PM

EUR/USD: technical analysis on June 1. EUR braced for lower decline

Hi, dear traders! On Wednesday, EUR/USD fell to 1.0652, the 23.6% Fibonacci level. The rebound from this level allowed the currency pair to show a slight increase towards the upper border of the downtrend corridor. However, at the moment, the pair has again turned in favor of the US currency and is preparing to resume its fall towards 1.0609 and possibly even lower. If the instrument settles above the corridor, it will allow traders to count on some growth after a monthly fall.

The information background of yesterday was interesting for traders. In particular, the number of open vacancies in the US JOLTS report turned out to be much better than the market consensus. Partly thanks to this data, the US dollar recovered again. However, yesterday should already be forgotten, since today the economic calendar is jam-packed with a great number of economic reports. Just below are listed all the events of the day that will matter to market sentiment. Particular attention should be paid to the report on inflation in the European Union. It is expected that the consumer price index will continue to slow down and will be 6.3-6.5% y/y in May. These forecasts are confirmed by inflation data from other EU countries, which was released 1-2 days ago. Inflation has declined in almost all countries, so we should expect a fall in the headline inflation in the EU.

In my opinion, if the actual EU CPI matches the forecast or exceeds it (that is, inflation will fall lower), this will create pressure on the euro currency, since in this case, the ECB may begin to send dovish signals. If inflation falls quickly and steadily, then there is less reason to continue tightening monetary policy. It is obvious that inflation is still far from the target level, so the ECB will not stop raising the rate, but the expectations of the market itself are important here. If investors sense that in the near future, the regulator may send a message about a pause in rate hikes, it will be bearish for the euro.

On the 4-hour chart, EUR/USD is extending its fall towards the Fibonacci 38.2% correction level at 1.0610. The imminent bullish divergence at the MACD indicator allows us to expect a slight increase, but it has not been confirmed yet. The rebound of the price from the level of 1.0610 will work in favor of the EU currency and encourage some growth. Closing below 1.0610 will increase the probability of a further decline towards 1.0201, the next Fibonacci level of 23.6%.

Commitments of Traders (COT)

In the last reporting week, speculators closed 8,666 long contracts and opened 4,687 short contracts. The overall market sentiment remains bullish and continues to intensify. The total number of long contracts held by speculators is now 250,000, while short contracts are only 76,000. All in all, clear-cut bullish sentiment is still valid, but I think that the situation will gradually change in the near future. The European currency has already begun to weaken. A large deal of open long contracts suggests that the buyers may decide to close them soon (or already have, as the latest COT report suggests). The bias towards the bulls is too strong at the moment. I believe that the current figures indicate a fall in the euro in the near future. Another thing is that a greater number of long contracts are in the hands of the Commercial group. This means that they exert a greater influence on the instrument's trajectory.

Economic calendar for US and EU

EU: manufacturing PMI (08-00 UTC)

EU: CPI (09-00 UTC)

EU: unemployment rate (09-00 UTC)

EU: ECB President Christine Lagarde speaks (09-30 UTC)

EU: ECB minutes of last monetary policy meeting (11-30 UTC)

US: ADP non-farm employment report (12-15 UTC)

US: initial unemployment claims (12-30 UTC)

US: ISM manufacturing PMI (14-00 UTC)

On June 1, the economic calendar is loaded with macroeconomic data and events of various importance. The information background matters a lot to market sentiment today.

Forecast for EUR/USD and trading tips

We can open more sell positions on EUR/USD after the price rebounds from the upper line of the trend channel or from about that level with the downward target at 1.0690 on the 1-hour chart. I would advise opening long positions not until the price closes above the descending trend channel with upward targets at 1.0726 and 1.0785 on the 1-hour chart.

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