USD weakens as jobless claims rise: EUR/USD fluctuates amidst market uncertainty

A quiet week turned more active towards the end, with fluctuating trading dominating until Thursday. The EUR/USD pair moved back and forth within a small range, slightly above 1.0700 for most of the week. Eventually, the USD weakened further as the week ended.

US jobless claims and consumer sentiment

With no big news driving things, people in the market paid attention to the latest US weekly job report. The number of people filing for unemployment benefits rose to 231,000 in the week ending May 3. That's the highest since November 2023, up 22,000 from the last reported number.

The average number of jobless claims over four weeks increased to 215,000. This indicates a bit of a relaxation in the job market, which made some people think the Federal Reserve might decide to cut interest rates faster. When this news came out, stocks continued their gains on the last day of the week, which wasn't good news for the US dollar.

Last Friday, the US shared the initial May Consumer Sentiment report by the University of Michigan. It showed that confidence among US consumers dropped this month. The index fell to 67.4 from 77.2 in April, worse than the market anticipated (76).

The part of the index measuring current conditions also went down from 79 to 68.8 compared to the previous month. What's more concerning is that expectations for inflation over the next year rose from 3.2% to 3.5%, and for the next five years, they increased from 3.0% to 3.1%.

As mentioned, there wasn't much data available. Despite some positive growth-related numbers, the Euro didn't benefit much. The Hamburg Commercial Bank released its final estimates for the April Purchasing Managers Indexes, most of which were adjusted upwards.

The Eurozone's final Services PMI stayed the same at 53.3, and the Composite Index, which includes both manufacturing and services, was at 51.7, showing that the economy was expanding at the start of the second quarter.

The EU also announced that the Producer Price Index dropped by 0.4% compared to the previous month and 7.8% compared to last year. The monthly decrease was slightly more than expected, but it was good news for those worried about inflation. Additionally, EU Retail Sales increased by 0.8% in March, surpassing expectations.

Fed officials' remarks and market sentiment

Throughout the week, several Federal Reserve officials spoke publicly. Those with more hawkish views maintained their stance, while the doves reiterated their cautious outlooks. However, none of them presented any new or surprising insights. As a result, none of their speeches managed to excite market participants or influence currency trading.

Federal Reserve officials generally reiterated that they would require greater assurance that inflation is moving closer to the 2% target before making any significant policy changes. Some, with more pessimistic views, are concerned about the possibility of cutting rates prematurely. However, there's consensus that the economy is progressing well.

The key takeaway from this week is that market participants recognize central banks' intentions to maintain interest rates at their current levels for as long as possible. However, investors still intensely desire broad-based rate cuts.

Upcoming economic data releases

Next week, inflation will be the focus, with the US set to unveil the April Consumer Price Index (CPI) on Wednesday. It's expected to show a monthly increase of 0.3%, down from the previous 0.4%. Additionally, the US will release the April Producer Price Index and Retail Sales data for the same month.

In Europe, investors will focus on the final estimate of the German Harmonized Index of Consumer Prices on Tuesday, which is anticipated to remain unchanged at 2.4% year-over-year. On Wednesday, attention will turn to the second estimate of the EU's Q1 Gross Domestic Product, previously estimated to have grown by 0.3% quarter-over-quarter. Lastly, the EU will release the April HICP on Friday, which is expected to show a 2.4% year-over-year increase.

EUR/USD technical analysis

Regarding the technical side, EUR/USD didn't advance much recently, staying below the previous weekly peak at 1.0811. It recorded slight gains for the fourth straight week, but there's a lack of strong bullish momentum. The pair trades below a bearish 20 SMA, which acts as dynamic resistance just above the 1.0800 level.

Meanwhile, the 200 SMA is slightly lower, targeting around 1.1130, and a stable 100 SMA offers support around the 1.0630 area. Additionally, technical indicators have retreated from their rebounds near their midlines and flattened out, indicating a lack of clear direction.

Technical analysis in the daily chart presents a comparable view. Besides Thursday's bullish movement, EUR/USD stayed within narrow intraday ranges. Also, a bearish 200 SMA draws in sellers near 1.0800, emphasizing the significance of this level. Meanwhile, the 100 SMA retains its downward trend above the longer SMA.

Some small bullish signals are starting to appear. However, they still need confirmation: The 20 SMA has shifted below the current level, and technical indicators show slight upward movements within positive ranges. However, they lack the strength needed to confirm an imminent uptrend.

Above the 1.0810 area, bulls might face resistance near 1.0890. Beyond that, the next level of selling pressure could be encountered in the 1.0980 to 1.1000 range. Important support levels are located at 1.0700, 1.0650, and the year's low at 1.0600.