Despite a strong US jobs report, the EUR/USD pair rose as US stock indices hit new record highs, driven by improved global risk appetite. However, the euro later faced a new gap. Let's discuss these topics and develop a trading plan.
The article covers the following subjects:
Major Takeaways
- The US labor market is stabilizing.
- The likelihood of a Fed rate hike in 2026 is increasing.
- Washington and Tehran cannot reach an agreement.
- Short positions on the EUR/USD pair can be increased on a breakout of 1.174.
Weekly Fundamental Forecast for Dollar
Yet again, it appears there will be no negotiations between the US and Iran in the near future. Donald Trump called Tehran's response to the US proposal completely unacceptable. The US intends to resume Operation Project Freedom, which means an escalation of the conflict in the Middle East is imminent. Against this backdrop, EUR/USD quotes started the week with another gap down, which will be harder to close this time than in previous instances.
Investors seem to be under a spell. Defying all logic, the US dollar fell despite the third consecutive monthly increase in non-farm payrolls of 100,000 or more over the past four months. Since the beginning of the year, the average monthly increase has been 76,000, compared to 42,000 for the same period in 2025.
US Non-Farm Payrolls
Source: Bloomberg.
At the end of last year, the Fed cut interest rates due to concerns about a cooling US labor market. However, now that it has stabilized, all efforts should be focused on fighting inflation. All the more so since Bloomberg analysts predict inflation will rise toward 4%. For months now, the central bank has been unable to bring the PCE back to its 2% target, which risks a loss of confidence.
US Inflation Forecasts
Source: Bloomberg.
These conditions make a federal funds rate hike seem like the ideal remedy. The futures market has increased the probability of monetary tightening in 2026 to above 20%, which, at least in theory, should have supported EUR/USD bears. Yet, the opposite occurred.
Stock indices welcomed the strong US April jobs report as a signal that there would be no recession. They reached new record highs, which reduced demand for the US dollar as a safe-haven asset. Ahead of the Washington-Tehran talks, this became a catalyst for the EUR/USD rally.
Much to the disappointment of bulls, the talks have been postponed. The US administration considers Iran's proposal to transfer its uranium reserves to a third party — with their immediate return if no agreement is reached on other issues—completely unacceptable. There was no mention of dismantling nuclear facilities.
Oil prices rose, but there is growing market talk of a ceiling on Brent's growth. Prior to the armed conflict in the Middle East, markets were well-supplied; governments quickly sold oil from their strategic reserves, other countries — including the US and Brazil — increased production, the UAE and Saudi Arabia are redirecting supplies, and high prices have led to a decline in global demand. At the same time, demand from oil refineries has declined.
Weekly Trading Plan for EUR/USD
In such conditions, there is a high probability that the EUR/USD pair will continue to consolidate within the 1.168–1.178 range. Short positions opened at 1.178 can be increased if the major currency pair falls below 1.174.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
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