US currency

Both instruments continue to decline steadily even with the news background, which is not always "strong". Over the weekend, however, there was quite expected news from the U.S. Congress about the national debt limit.   US Treasury Secretary Janet Yellen reaffirmed June 1 as the "hard deadline" for the US to raise the debt ceiling or risk defaulting on its obligations. Since no one in the market doubted that the Democrats and Republicans would eventually find common ground, the decision and its announcement were just already expected.   US President Joe Biden's press office reported that the White House and House Republicans have striked an agreement, meaning an official bill will be passed by June 1 that would raise the debt ceiling by another $2 trillion. Problem solved, and the week could start volatile for the markets.       There is nothing scheduled for Monday. Nevertheless, many instruments can show good activity as they haven't had the opportunity to react to the news of raising the debt limit over the weekend. Since this decision is positive for the US economy, it is reasonable to expect an increase in demand for the US currency. However, some analysts believe that the recent appreciation of the US dollar was driven by rising risk aversion sentiment.   Despite the default risk that threatened the US and the dollar, many investors may have used it as a "safe haven." Personally, I don't believe in such an assumption, but I can't speak for every individual. I expect active movements on Monday, but it doesn't make sense to guess the direction. In any case, regardless of the direction of both instruments, we can assume that this movement will not disrupt the overall wave pattern. If the euro and the pound rise on Monday-Tuesday, it can be considered as a corrective wave within a downtrend.   In the opposite case, the main wave will continue to form. We have much more important news and reports, such as the US labor market or inflation in the European Union. The wave pattern is highly important for the market right now, as instruments can move in a certain direction based solely on it. The topic regarding central bank rates is currently losing some of its appeal.   Last week, there were many speeches by European Central Bank and Federal Reserve members, but we did not receive any clarity on the topic. I believe that there is a consensus on this issue, and the new speeches did not change it.     Based on the analysis conducted, I conclude that the uptrend phase has ended. Therefore, I would recommend selling at this point, as the instrument has enough room to fall. I believe that targets around 1.0500-1.0600 are quite realistic. These are the targets I suggest for selling the instrument.   The wave pattern of the GBP/USD pair has long indicated the formation of a new downtrend wave. Wave b could be very deep, as all waves have recently been equal. A successful attempt to break through 1.2445, which equates to 100.0% Fibonacci, indicates that the market is ready to sell. I recommend selling the pound with targets around 23 and 22 figures. But most likely, the decline will be stronger.    

The EUR/USD pair executed a reversal in favor of the US currency on Friday and began a new decline, closing below the corrective level of 38.2% (1.0726). Thus, the overall decline of the pair may continue toward the next Fibonacci level at 23.6% (1.0652). A rebound from the level of 1.0652 will favor the euro and lead to some growth, while a close below it will increase the likelihood of a further decline toward the level of 1.0609.     On Friday, traders closely followed the US reports. There were many important events throughout the past week, but the labor market and unemployment data always held a special place in the hearts of traders. Without going into much detail, the statistics favored the bears, but the two most important reports showed different trends. The unemployment rate for May increased from 3.4% to 3.7%, although traders expected a rise to 3.5%. Meanwhile, nonfarm payrolls in May showed a result of +339K, exceeding expectations of +180K.   Thus, the unemployment rate turned out worse, but the payrolls were better. Traders concluded that the payroll report was more important (and I fully agree with them), so the dollar rose in price again. The US currency should continue to rise, as all recent statistical data indicates a good state of the American economy. The Federal Reserve (Fed) continues to maintain a "hawkish" position, and even after raising the interest rate to 5.25%, the economy continues to show growth, unemployment remains low, and the labor market creates more jobs almost every month than the market expects. These are compelling reasons for further dollar appreciation, as it has significantly lost value over the past year. On higher charts, there is a corrective potential towards the level of 1.03.     On the 4-hour chart, the pair reversed in favor of the euro, but the growth was short-lived. The quote decline may resume toward the corrective level of 38.2% (1.0610). A rebound of the pair's rate from this level will allow traders to expect a small increase toward the Fibonacci level of 50.0% (1.0941). If the quotes close below the level of 1.0610, the chances of further decline toward the Fibonacci level of 23.6% (1.0201) will increase.   Commitments of Traders (COT) report:   During the last reporting week, speculators closed 8,253 long and 242 short contracts. The sentiment of large traders remains "bullish" but has slightly weakened in recent weeks. The total number of long contracts speculators hold is 242,000, while short contracts amount to only 76,000. For now, strong bullish sentiment persists, but the situation will continue to change soon. The euro has been falling for two consecutive weeks. The high value of open long contracts suggests that buyers may close them soon (or may have already started, as indicated by the last two COT reports). There is currently an excessive tilt towards the bulls. The current figures allow for a continuation of the euro's decline soon.     News calendar for the United States and the European Union: Eurozone - Services Purchasing Managers' Index (08:00 UTC) USA - Services Purchasing Managers' Index (PMI) (13:45 UTC)   USA - Industrial Orders Volume (14:00 UTC) USA - ISM Non-Manufacturing Purchasing Managers' Index (PMI) (14:00 UTC)     On June 5, the economic events calendar includes three entries for the USA and one for the EU. The most important among them is the ISM index. The impact of the news background on traders' sentiment today may be moderate and occur in the second half of the day. Forecast for EUR/USD and trader advice: New pair sales could be opened on a breakout from the level of 1.0785 on the hourly chart, with targets at 1.0726 and 1.0652. I advise buying the pair on a breakout from the level of 1.0610 on the 4-hour chart, with targets at 1.0726 and 1.0784.      

Not only is the demand for the US currency decreasing, it's practically falling every day. The EUR/USD pair increased by 220 points this week, the GBP/USD pair by 270, if calculated from the week's opening point. At first glance, it may seem that the dollar losses are not frightening, but it continues to fall even when there are no reasons for it to do so. We are all used to the idea that market movements rely on economic data, daily events that help determine direction within each day. Sometimes there are strong background events, thanks to which one or another currency can grow every day, but this growth is not expressed in three-digit numbers.     Having analyzed the situation again, I came to the conclusion that the dollar's problem may lie in rapidly falling inflation. If inflation has already dropped to 3%, then the Federal Reserve has no need to continue policy-tightening in 2023. Perhaps there will be another "control shot" at consumer prices, and the rate will rise to 5.5%. But that's it.   The second point - if inflation is approaching the Fed's target, then monetary easing may begin as early as 2023. In the case of the European Central Bank and the Bank of England, if the rate does finish rising in the coming months, it is not possible to talk about policy easing in the context of the near-term perspective. In my opinion, this is a rather dubious explanation for the falling demand for the US currency, but there is no other! The ECB and the BoE will sooner or later also cease tightening and move to easing, and this time may come even sooner than it seems now.   After all, in the UK and the EU the question of recession remains open. US GDP grows by 2-3% each quarter, whereas in Europe and the UK, growth has been absent for several quarters. And the higher the rate goes, the more "negative" economic growth will be. And I believe this factor should also be taken into account. Based on all of the above, the euro and pound can extend its upward movement for some time. This can be explained as the "final impulse" of the market, which understands that it has placed both instruments in overbought territory. However, it's impossible to predict when most market participants will decide to take profits and close long positions. I believe that now it is necessary to carefully monitor the situation and try to respond to it as quickly as possible.   There aren't really any other options. Both wave markings allow for a build-up of a descending set of waves, but we know that any wave structure can be complicated. And the current news background provides no help or benefit. There were plenty of weak economic reports from the EU and Britain this week.   Based on the analysis conducted, I conclude that the uptrend build-up is still in progress, but it can end at any moment. I believe that targets around 1.0500-1.0600 are quite realistic, and I advise selling the instrument with these targets. However, now we need to wait for the completion of the a-b-c structure, and afterwards we can expect the pair to fall into this area. Buying is quite risky. The euro uses any opportunity to rise, but the news background for the dollar is not as weak as it may seem. The wave pattern of the GBP/USD pair suggests the formation of an upward set of waves. Earlier, I advised buying the instrument in case of a failed attempt to break through the 1.2615 mark, which is equivalent to 127.2% Fibonacci, and then open long positions while aiming for targets around the 1.3084 mark, which corresponds to 200.0% Fibonacci. Now all targets have been achieved, but a successful attempt to break through 1.3084 can lead to a new momentum with targets located around 1.3478 (261.8% Fibonacci).