EUR/USD Weekly Forecast: Euro Faces August PMI Test and Fed Chair Powell

Highlights:

• EUR/USD falls 0.70% for the week, with a sharp decline attributed to hot US retail sales data.
• ECB President Lagarde, prelim PMIs for August, German GDP, and the German Ifo Business Climate Index to sway EUR/USD trajectory.
• Jackson Hole Symposium and Fed Chair Powell are set to be the main determinants for the dollar.

Overview

The EUR/USD declined by 0.70% in the week ending August 18. Following a 0.58% decline from the previous week, the EUR/USD closed at $1.08682. Hotter-than-expected US retail sales numbers and the FOMC meeting minutes reignited bets of a hawkish Fed interest rate outlook.

Significantly, the EUR/USD rose to a Monday weekly high of $1.09602 before falling to a Friday weekly low of $1.08448. The EUR/USD extended the losing streak to five weeks.

Euro Area Private PMIs Set to Test the ECB Hawks

Inflation will be in the spotlight on Monday, with German producer price index numbers in focus. A more marked fall in producer prices would support the gloomy outlook for the German economy. Economists forecast the producer price index to fall by 0.4% in July (June: -0.3%).

On Wednesday, the euro area private sector will be under scrutiny. With prelim PMIs for France, Germany, and the Eurozone in focus, a more marked contraction across the manufacturing sector and an unexpected contraction across the services sector could shut the door on a September ECB interest rate hike.

Economists forecast the Eurozone Manufacturing PMI to fall from 42.7 to 42.4 and the services PMI to drop from 50.9 to 50.4. Investors should look beyond the headline numbers, with employment, new orders, and input/output prices needing consideration. Lower headcounts, softer input/output prices, and a fall in new orders would weigh on the EUR/USD.

However, German GDP and Ifo Business Climate Index numbers will also move the dial on Friday. The EUR/USD is set for a fall, with economists forecasting the German economy to stall in the second quarter. Disappointing GDP numbers and a weaker-than-expected Ifo Business Climate Index would leave the EUR/USD on the ropes.

ECB President Christine Lagarde is on the calendar to speak on Friday. The ECB President will speak at the Jackson Hole Symposium.

Jackson Hole Symposium and Fed Chair Powell in Focus

It is another pivotal week for the dollar and the global financial markets.

On Wednesday, prelim private sector PMIs will set the tone for the dollar. A pickup in service sector activity would support the bets on a more hawkish Fed.

US initial jobless claims and core durable goods also need consideration on Thursday. Another fall in initial jobless claims would give the Fed plenty to consider.

While Michigan consumer sentiment numbers will also draw interest on Friday, the Jackson Hole Symposium on Thursday and Friday and Fed Chair Powell will have more impact.

The latest US economic indicators and FOMC meeting minutes support a more hawkish outlook on Fed monetary policy. FOMC members and Fed Chair Powell will likely deliver forward guidance this week.

EUR/USD Technical Indicators

Daily Chart

The Daily Chart showed the EUR/USD sitting above the lower level of the $1.0900 – $1.0850 support band. After the bearish week, the EUR/USD sat below the 50-day EMA while holding above the 200-day EMA, sending bearish near-term but bullish longer-term price signals.

Looking at the 14-Daily RSI, the 36.77 reading reflects bearish sentiment. The RSI suggests a fall through the $1.0900 – $1.0850 support band to give the bears a run at the 200-day EMA and sub-$1.08. A move through the $1.0900 – $1.0850 support band would bring the 50-day EMA into play.

4-Hourly Chart

Considering the 4-Hourly Chart, the EUR/USD hovers above the lower level of the $1.0900 – $1.0850 support band.

However, the EUR/USD sits below the 50-day and 200-day EMAs, sending bearish near and longer-term signals.

The 14-4H RSI at 41.69 reflects bearish sentiment, with selling pressure outweighing buying pressure. Significantly, the RSI aligns with the 50-day EMA, supporting a fall through the $1.0900 – $1.0850 support band to bring sub-$1.08 into play.

Price action this week will hinge on the private sector PMIs, updates from the Jackson Hole Symposium, and Fed Chair Powell.