EUR/USD AND S&P 500 FORECAST:
- EUR/USD slides on risk-off sentiment, testing a key technical support near the psychological 1.0900 level
- The S&P 500 also loses ground, but Alphabet’s solid rally cushions market weakness
- This article looks at key technical levels to watch on EUR/USD and the S&P 500 over the coming days
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The U.S. dollar strengthened across the board on Thursday, despite falling U.S. bond yields, indicating that the move was driven by increased demand for defensive assets in response to risk aversion. In this context, EUR/USD sustained heavy losses in the session, down 0.6% to 1.0910 at the time of writing.
In the equity space, the S&P 500 was also underwater, with the index falling 0.35% to 4,135 in early afternoon trading, hit by weakness in most cyclical sectors. The sell-off would have been larger had it not been for Alphabet shares' strong rally, which gained about 5% on "AI hype" following the release of new products (Alphabet is Google’s parent company).
In any case, negative sentiment was triggered by renewed concerns about regional banks after PacWest Bancorp (PACW) revealed that it lost 9.5% of its deposits last week, a sign that outflows may be reaccelerating amid growing pessimism surrounding the industry.
JPMorgan Chase CEO’s comments warning that the recent banking sector turmoil is not over and that commercial real estate losses may take a few financial firms down appeared to have reinforced the bearish tone on Wall Street.
The large jump in unemployment claims made matters worse for riskier assets. According to the U.S. Department of Labor, the number of Americans filing for jobless benefits climbed to its highest level in 18 months for the week ending May 6, suggesting the jobs market may be starting to crack.
Although rising unemployment may lead the Fed to adopt a dovish stance sooner than forecast, the effects of a policy pivot may not transmit linearly to most assets. For example, before weakening steadily, the USD could rise on flight-to-safety flows if markets begin to convulse because of an imminent downturn.
| Change in | Longs | Shorts | OI |
| Daily | 13% | -18% | 2% |
| Weekly | -3% | -13% | -6% |
EUR/USD TECHNICAL ANALYSIS
After the recent pullback, EUR/USD seems to be sitting above technical support located near the psychological 1.0900 level. If bulls fail to fend off the current bearish assault and the floor is breached, selling momentum could accelerate, setting the stage for a move toward trendline support at 1.0850.
On the other hand, if buyers regain the upper hand and cause prices to reverse higher from present levels, initial resistance appears at 1.1035. On further strength, the focus shifts higher to the 2023 swing highs just a touch below the 1.1100 handle.
EUR/USD TECHNICAL CHART
EUR/USD Chart Prepared Using TradingView
S&P 500 TECHNICAL ANALYSIS
A careful examination of the S&P 500’s daily chart suggests prices are developing a double-bottom pattern, a bullish setup according to technical analysis. The configuration, which has not yet been completed, would be confirmed by a breach of resistance at 4,200. This bullish breakout could open up the possibility of a move toward 4,310, the 61.8% retracement of the 2022 decline.
Conversely, if sellers retake control of the market and push the index lower, the first support to consider rests at 4,100, followed by 4,075. If both floors are taken out decisively, the double-bottom formation would be invalidated, paving the way for a drop toward 4,150. On further weakness, bears could become emboldened to launch an attack on trendline support at 4,000.
| Change in | Longs | Shorts | OI |
| Daily | 2% | 2% | 2% |
| Weekly | 11% | -14% | -1% |
S&P 500 TECHNICAL CHART
