EUR/USD Weekly Forecast – $1.0850 in View on Economic Divergence

Highlights:

• The EUR/USD stumbled in the week ending July 28, with the ECB and ongoing bets on a US soft landing weighing.
• However, it is a busy week ahead, with economic indicators cable of turning the monetary policy divergence tables in favor of the EUR.
• It will likely come down to the US Jobs Report on Friday.

It’s a busy week for the EUR/USD, with German retail sales, Eurozone inflation, and euro area GDP numbers kickstarting the week. We expect the Eurozone numbers to have more impact. With the ECB uncommitted to a September policy decision, sticky inflation and better-than-expected GDP numbers would support a more hawkish September meeting.

German employment numbers will also need consideration on Tuesday ahead of German trade and factory orders on Thursday and Friday. Employment has supported consumer spending. However, the latest German GfK Consumer Climate Index report signaled a pullback in consumption. Weaker employment conditions would force consumers to tighten their purse strings.

Other stats include manufacturing and service PMI numbers for Italy and Spain and finalized numbers for France, Germany, and the Eurozone. The numbers from Italy and for the Eurozone will likely have the most impact.

The US Week Ahead

ISM Manufacturing PMIs for July will be in focus on Tuesday. The markets will look for a less marked contraction to support the bullish sentiment toward the US economy. Investors should consider sub-components, including employment and prices.

Labor market numbers also need consideration, with JOLTs Job Openings and ADP nonfarm employment change numbers out on Tuesday and Wednesday. After economic indicators from last week, tight labor market conditions would support a hawkish Fed outlook.

However, on Thursday, ISM Non-Manufacturing PMI numbers and jobless claims would need to support the Fed hawks.

The all-important US Jobs Report will wrap up a busy week on Friday. Wage growth, nonfarm payrolls, and the US unemployment rate will be focal points.

EUR/USD Technical Indicators

Daily Chart

The Daily Chart showed the EUR/USD pullback from the $1.1060 – $1.1015 support band to test support at the 50-day EMA ($1.09725). However, the EUR/USD steered clear of the $1.0900 – $1.0850 support band, supporting a return to $1.10.

Looking at the EMAs, the EUR/USD sat above the 50-day ($1.09725) and 200-day ($1.07802) EMAs, signaling bullish momentum over the near and longer term.

A EUR/USD hold above the 50-day EMA ($1.09725) would support a breakout from the $1.1060 – $1.1015 support band would bring $1.11 into view. However, a fall through the 50-day EMA ($1.0925) would give the bears a run at the $1.09 – $1.0850 support band.

Looking at the 14-Daily RSI, the 48.68 reading sent bearish price signals. The RSI suggests a fall through the 50-day EMA ($1.0925) to bring the $1.0900 – $1.0850 support band into view.

4-Hourly Chart

Looking at the 4-Hourly Chart, the EUR/USD sits below the $1.1060 – $1.1015 support band with a visit to sub-$1.10.

The EUR/USD remains below the 50-day EMA ($1.10739) while holding above the 200-day EMA ($1.10114), sending bearish near-term but bullish longer-term signals.

Significantly, the 50-day EMA narrowed on the 200-day EMA, signaling a return to sub-$1.10 to bring the $1.0900 – $1.0850 support band into view. However, a EUR/USD move through the $1.1015 – $1.1060 support band and the 50-day EMA ($1.10739) would give the bulls a run at the $1.1180 – $1.1221 resistance band.

The 14-4H RSI at 42.87 sends bearish EUR/USD price signals. Significantly, the RSI aligns with the 50-day EMA, supporting a fall through the 200-day EMA ($1.10114) to target the $1.0900 – $1.0850 support band.