- The EUR/USD weekly forecast points to a corrective downtrend although the pair ended the week with net gains, as the US dollar rebounded slightly.
- The upbeat US Producer Price Index and the Federal Reserve’s consistency in its recent meeting allowed the dollar to decline.
- Markets will closely monitor the European Central Bank’s interest rate decision and US employment data for further momentum.
The EUR/USD pair has been troubled but supportive of the euro this week. The US dollar fell to multi-year lows before recovering. The dollar faced geopolitical concerns and concerns about the independence of the Federal Reserve. However, sentiment improved after President Trump and the Senate averted a potential government shutdown.
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Moreover, the nomination of former Fed Governor Kevin Warsh as the next Fed Chairman also helped stabilize the dollar, as markets saw him as supportive of the central bank’s independence.
US data sent mixed signals as factory orders beat expectations, but initial jobless claims rose, and the trade deficit widened. Also, PPI numbers showed flat inflation, with stronger than expected PPI and core PPI readings.
This has reinforced the view that the Fed will be cautious about aggressively cutting interest rates. Comments from Atlanta Fed President Rafael Bostic emphasized that inflation remains very high and that the Fed must be patient, while maintaining a high ceiling for monetary policy easing in the near term.
In the Eurozone, fundamentals were modestly supportive of the Euro. Eurozone fourth-quarter GDP and German GDP beat expectations, indicating a still resilient, if modest, growth backdrop. German inflation hovered close to the ECB’s target, with the consumer price index (HICP) and core measures broadly stable.
Analysts at Rabobank, TD Securities and Brown Brothers Harriman expect the ECB to keep its deposit rate at around 2.00% for an extended period. They see no urgency for cuts or increases, even though the strength of the euro raises some concerns about competitiveness.
On the other hand, strategists at Nordea and UOB highlight the risks of a multi-year downward cycle for the US dollar. Historical patterns of long-term post-peak dollar depreciation and changing foreign investor behavior support this view. Their forecasts see room for further gains for EUR/USD over the coming years, provided growth and inflation in the eurozone remain under control and the European Central Bank remains broadly steady.
Key events for EUR/USD next week:
Next week, EUR/USD traders will focus on a dense calendar of high-impact releases:
- ECB refinancing rate and press conference
- US ISM Manufacturing/Services PMIs
- Job opportunities in JOLTs
- Non-Farm Employment Change ADP
- Average hourly earnings m/m
- Unemployment rate in the United States
- Initial consumer confidence from UoM
- Preliminary inflation forecasts for the University of M
The European Central Bank is widely expected to maintain interest rates, with a dovish, data-driven tone, while closely monitoring any decline in euro strength. On the US side, labor market and wage data will be crucial to improving the Fed’s outlook on interest rates. Any major surprise in the non-farm payrolls or unemployment report could lead to sharp moves in EUR/USD as markets reassess relative policy expectations.
EUR/USD Weekly Technical Forecast: Corrective downside below 1.19
The daily chart of the EUR/USD pair shows a correction from its highest levels in more than 4 years above the 1.2000 level. The pair fell again below the broken supply zone, and corrected below the 1.1900 mark. The RSI is now far from the overbought zone, and is gradually declining, revealing underlying weakness. However, the main moving averages remain bullish, providing strong support for the pair.
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The downtrend may find major support at the bullish gap near 1.1830, before the horizontal level at 1.1800. On the upside, the price needs to accept above the 1.2000 psychological barrier to maintain the upside momentum and target 1.2100 before 1.2200.
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