EUR/USD struggles to hold above 50-day SMA ahead of NFP report

EUR/USD struggles to hold above 50-day SMA Ahead of NFP report

EUR/USD carves a series of lower highs and lows after trading above the 50-day SMA (1.0729) for the first time since March, and the exchange rate may continue to track the negative slope in the moving average as the Federal Reserve looks to further normalize monetary policy over the coming months.

The update to the ISM Manufacturing survey is likely to keep the Federal Open Market Committee (FOMC) on track to implement higher interest rates as the gauge climbs to 56.1 from 55.4 in April, and lack of evidence of a looming recession may encourage the Fed to deliver another 50bp rate hike as the central bank anticipates the ‘labor market to remain tight and wage pressures to stay elevated for some time.’

As a result, the NFP report is expected to show the US economy adding 325K jobs in May, and a further improvement in the labor market may generate a bullish reaction in the Dollar as it raise the Fed’s warns that “a restrictive stance of policy may well become appropriate depending on the evolving economic outlook.”

In turn, EUR/USD may continue to depreciate ahead of the next FOMC meeting on June 15 as Chairman Jerome Powell and Co. show a greater willingness to push the Fed Funds rate above neutral, but the tilt in retail sentiment looks poised to persist as traders have been net-long the pair since mid-February.

The IG Client Sentiment report shows 57.33% of traders are currently net-long EUR/USD, with the ratio of traders long to short standing at 1.34 to 1.

The number of traders net-long is 3.60% higher than yesterday and 9.17% lower from last week, while the number of traders net-short is 3.61% higher than yesterday and 19.48% higher from last week. The decline in net-long interest has helped to alleviate the crowding behavior as 78.30% of traders were net-long EUR/USD last month, while the jump in net-short position comes as the exchange rate struggles to hold above the 50-Day SMA (1.0729).

With that said, EUR/USD may largely mimic the price action from March as it slips back below the moving average, and the exchange rate may continue to carve a series of lower highs and lows over the coming days as the NFP report is anticipated to show a further improvement in the US labor market.

EUR/USD rate daily chart

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