The U.S. initial jobless claims report tends to spur strong intraday moves for dollar pairs lately.
Can this classic pullback setup on EURUSD play out?
I’m seeing a simple correction play to a short-term falling trend line and Fib levels that might keep gains in check.
EUR/USD 1-hour Forex Chart by TradingView
Uncle Sam’s upcoming initial jobless claims report is slated to show a slightly slower increase in unemployment of 221K versus the earlier 224K increase.
Now this weekly release tends to spur strong intraday reactions from dollar pairs, especially if the actual figures post a significant upside or downside surprise.
After all, these could have clues on U.S. labor market performance, which in turn impact Fed policy expectations and dollar trends.
A smaller-than-expected increase in jobless claims could underscore the latest upbeat NFP report, which might then reinforce the “higher for longer” Fed interest rate outlook, possibly leading to a pop higher for USD.
If that’s the case, EUR/USD could resume its downtrend right around the area of interest spanned by the Fibs and make its way back to the swing low near S1 (1.0750).
In particular, the 38.2% Fib could attract sellers since it’s near the 1.0800 major psychological mark. A higher pullback could still find dollar bulls at the 50% Fib near the 200 SMA dynamic resistance or the 61.8% level closer to the short-term falling trend line and former support zone.
The line in the sand for a bearish pullback might be at R1 (1.0860) as a break above this could mark the start of a reversal, which could possibly be followed by a rally to R2 (1.0940) then R3 (1.0980) if the jobless claims turn out higher.
Other potential catalysts to watch out for are FOMC member Barkin’s testimonies later in the day, although it’s also worth noting that he tends to lean hawkish.
In his latest speeches, he mentioned that he’s supportive of a more patient approach when considering the timing of rate cuts. He also warned that the latest progress on inflation might be a “head fake” and that a rebound in price pressures might be seen in the next months, highlighting the need for high borrowing costs.
In any case, it might make sense to wait for the actual initial jobless claims figure to come out before deciding on a dollar bias since the reaction tends to last almost the entire U.S. session.
Make sure you keep tabs on overall market sentiment as well to gauge if it still favors the safe-haven dollar, then adjust your risk management plan accordingly!