In the current short-term perspective, at least until the European Central Bank meeting on Thursday, the euro has opted for an alternative scenario with the formation of a divergence. The dollar index fell 0.51% due to the Eurozone and U.S. PMI data. The euro rose 56 pips, reaching the target level of 1.0905.
The Eurozone Manufacturing PMI rose to 47.3 in May from 45.7, the UK PMI rose to 51.2 in May, up from 49.1 in April, and the US ISM Manufacturing PMI came in at 48.7, down from 49.2 for April. However, the Markit PMI rose from 50.0 to 51.3. In addition, the ISM employment index jumped to 51.1 in May from 48.6 in April, and the non-farm payrolls data is expected to rise 185,000 in May compared to 175,000 in April.
With such a minor imbalance, it seems that the euro’s rise was quite excessive, but investors exacerbated the situation by increasing the probability of a Federal Reserve rate cut at the September meeting from 47% to 52%, this is already a signal for the Fed itself, which often follows market expectations.
On the weekly and monthly timeframes, there are signs that the euro will continue to rise to 1.1602 (November 2020 low), but we continue to adhere to the idea that with the ECB rate cut, the euro will turn into a medium-term decline. In the current situation, we do not expect the price to rise above 1.0964; we expect a technical divergence to form. If the ECB cannot stop the euro from rising, then we can expect a response from US financial institutions.
The situation is completely bullish on the 4-hour chart; the Marlin oscillator has slightly turned downwards, but this isn’t a leading signal for a price reversal. Even if the price consolidates below the level of 1.0905, this will not be a sign of a reversal. Only a break below the support line of MACD, below the level of 1.0862, will provide the signal. We are waiting for the ECB meeting.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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