EUR/USD Rallies on Weak USD: Bulls Take Control

The EUR/USD showcased its strongest performance in months on Thursday, driven by a weakening US dollar and declining expectations of a Federal Reserve (Fed) rate hike ahead of the US official employment report.

In the Eurozone, April data confirmed a slowdown in inflation, providing relief for the European Central Bank (ECB) and reducing the pressure for further interest rate increases. This positive development, coupled with ECB President Christine Lagarde's remarks about continued work needed to address elevated inflation, contributed to the bullish sentiment.

The primary catalyst behind the EUR/USD rally was the broad-based decline of the US dollar. As Fed officials hinted at maintaining rates in June and market participants anticipated potential rate cuts later in the year, Treasury yields plummeted. Additionally, improved market sentiment, driven by positive Chinese data, a debt-limit resolution, and easing inflation figures, further weighed on the US dollar.

Attention now turns to Friday's Nonfarm Payrolls report, with an expected increase of 190,000 jobs. While the ADP report surpassed expectations with a rise in private payrolls, it failed to provide support for the greenback. The ISM Manufacturing PMI also declined in May, along with the Price Paid Index, signaling a slowdown in inflation and weak manufacturing activity. These factors contributed to the downward pressure on the US dollar.

Technical analysis suggests a potential bullish impulse for the EUR/USD, with the price experiencing a pullback around the Fibonacci area. This outlook supports a long setup for the pair in the coming days, further fueling the optimism among bullish traders.