At the end of last week, the exchange rate of the Euro/Dollar Forex currency pair fell to the level of 1.2165.
On Thursday, the US currency sharply increased in price against other assets after the release of unexpectedly strong preliminary data on the US employment market. On Friday, the official release, on the contrary, was weaker than forecasts, so the quotes won back most of the losses.
In May, the number of new non-agricultural jobs in the US was 559,000, below expectations of 650,000. The relative disappointment this month will not allow the dollar to continue its recovery against the euro and other currencies. Employment in the US is still 7.6 million less than before the crisis. Unemployment fell to 5.8% from 6.1%. Average hourly earnings increased by 0.5% compared to April. In annual terms, the indicator remains at a low level after growing by 2% in May. The data is likely to reinforce the view of most Fed officials that progress has not been substantial enough to start discussions on reducing bond purchases.
Other data still reflect positive momentum in the US economy. Among these indicators is the growth of the index of business activity in the service sector to the highest level in decades. Analysts at Wells Fargo note that activity in the service sector has never been so strong, and warn that as the recovery gathers momentum, demand is outstripping scarce supply. All of this pushes the purchase price component to the second-highest level on record. The difficulties of returning workers after the pandemic are contributing to growing price pressures. The hiring index fell 3.5 points. The decline in the employment index does not correspond to the growing indicators of activity and orders.
The global stock market rose after the release of US employment data in May. This also dampened expectations for signals of a change in the Fed's monetary policy. The US central bank cited inflation and the state of the labor market as two key factors needed to tighten monetary policy. The data came out before the Fed and ECB meetings. Market participants will be watching for signals of a reduction in large-scale bond repurchase programs.
The meeting of the European Central Bank will be held next Thursday. According to forecasts, the regulator will leave monetary policy unchanged. The head of the ECB, Christine Lagarde, has repeatedly noted that no changes are planned in any direction. It is too early for the Central Bank to even begin distant conversations about tightening monetary policy, despite the improvement in economic growth. Although core inflation rose above the ECB's 2% target in May, core inflation increased by only 0.9%. The reduced prospects for policy tightening put pressure on government bond yields, which in turn led to a 0.9% decline in the European banking sector equity index.
Euro/Dollar Forex signals and levels
The forecast for the coming week assumes an increase in the Euro/Dollar exchange rate to the resistance levels of 1.2180, 1.2200, 1.2230, 1.2250 and 1.2275.