EUR/USD forecast: forms H&S pattern ahead of US NFP data

The EUR/USD pair pulled back this week as the recent rally lost momentum. The pair initially soared to a high of $1.1576 on April 21 and has now retreated to the important psychological point at 1.1300. This article explains what to expect ahead of the upcoming US nonfarm payroll (NFP) and European inflation report.

US nonfam payrolls data ahead

The EUR/USD pair will be in focus on Friday as the US will release the April jobs numbers, which will provide more information about the state of the economy. 

A report released earlier this week by ADP showed that the private sector created just 61k jobs in April as executives assessed the impact of tariffs on their businesses. The job addition was much lower than the expected 121,000.

Economists expect the data to show that the upcoming nonfarm payrolls report will indicate the economy created 130,000 jobs in April, a significant decline after it added 228,000 jobs in March. Some analysts anticipate a smaller number than that as companies embraced a wait-and-see attitude. 

The unemployment rate is expected to remain at 4.2%, while the participation rate will be at 62.5%. Most importantly, analysts expect the report to reveal that the average hourly earnings grew from 3.8% to 3.9%.

The NFP numbers are important because they show whether an economy is doing well or not. Most importantly, they are part of the Federal Reserve’s dual mandate, which is to ensure a low unemployment rate and stable inflation figure. 

The NFP data come two days after the US released a series of mixed economic numbers. Data revealed that the US GDP declined by 0.3% in the last quarter. Another figure showed that the consumer confidence tumbled to 86, the lowest level since the pandemic era.

Therefore, analysts are expecting a Feferal Reserve intervention, where it slashes interest rates in the June meeting. 

European inflation data ahead

The other top catalyst for the EUR/USD pair will be the upcoming flash European inflation data. Economists polled by Reuters expect the data to show that the headline Consumer Price Index (CPI) slowed down from 2.2% to 2.1% in April. 

They also see the core CPI, which excludes the volatile food and energy prices, to slow from 2.4% to 2.2%.

These numbers, if accurate, will likely indicate further interest rate cuts by the European Central Bank (ECB) as it seeks to prevent a recession. It has already slashed rates seven times this cycle.

EUR/USD technical analysis

The daily chart indicates that the EUR/USD exchange rate has retraced from its April high of 1.1576 to the current level of 1.1300. It has formed a head-and-shoulders pattern, a popular bearish reversal sign. 

Top oscillators like the Relative Strength Index (RSI) and the MACD have all pulled back in the past few days. 

There are signs that the pair is forming a break-and-retest chart pattern as it eyes towards the support at 1.1215. This target is notable since it represents the upper side of the cup-and-handle pattern. 

As such, the pair will likely retest that support and then resume the uptrend. More gains will be confirmed when the pair surges above the head section at 1.1576. 

By measuring the depth of the cup, we can estimate the long-term EUR/USD forecast. In this case, the depth is 9.4%, indicating that the long-term prediction will be at 1.2260, which is approximately 8% higher than the current level.