EUR/USD set to plummet towards 1.1925 as the US dollar spikes

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on May 4, 2021
  • The EUR/USD pair declined sharply as the US dollar rebounded sharply.
  • The pair dropped as traders looked forward to the upcoming US non-farm payroll data.
  • Technically, there is a possibility that it will keep falling in the near term.

The EUR/USD slipped to the lowest level since April 23rd as the US dollar bounced back. It dropped to 1.200, which was 1.25% below the highest point this year. 

EUR/USD
EUR/USD price action

US dollar strength resumes

The EUR/USD is sliding mostly because of the overall strong US dollar. The dollar index has surged by more than 0.45% today. It has gained by 0.45% against the Swiss franc, 0.60% against the Swedish krona, and 0.40% against the Canadian dollar. 

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This performance is probably because of the rush to safety as forex traders wait for the upcoming US non-farm payroll numbers that are scheduled for Friday this week. Indeed, bond yields have surged, with the 10-year rising by 1% to 1.621% and the 30-year rising to 1.63%. Analysts believe that highly positive jobs numbers will put more pressure on the Federal Reserve to start talking about tightening. 

The strong US economy is also playing a role in the dollar strength. Data by Markit and the Institute of Supply Management (ISM) showed that the country’s manufacturers are doing well. However, many of them are facing significant challenges and high supply prices. It has been widely reported of the challenges facing many companies because of the ongoing shipping challenges. 

Dat published today revealed that the US trade deficit continued to widen. In March, the country exported goods worth more than $200 billion and imported goods worth $274 billion. This led to a massive trade deficit of more than $74 billion. This performance was mostly because of the stimulus that incentivised importers to buy more from abroad.

Meanwhile, the EUR/USD is also falling because of the divergence of the US and Eurozone economies. Data published by Markit yesterday showed that the Euro zone’s manufacturing sector was facing substantial challenges. The bloc is also struggling with the slow rollout of the vaccine.

EUR/USD forecast

EUR/USD
EUR/USD technical chart

In my May outlook for the EUR/USD pair, I said that the price would rebound slightly and then resume the downward trend. This relief rally was necessary for the pair to form the right shoulder of the head and shoulders pattern. That happened and the pair has moved below last week’s low of 1.2013. 

The pair is trading between the 23.6% and 38.2% Fibonacci retracement levels. It is also being supported by the 25-day and 50-day weighted moving averages (WMA). Therefore, the pair will likely keep falling as bears target the 50% retracement at 1.1925, which is the lowest level since April 13.

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