EUR/USD Weekly Forecast – Sub-$1.10 in View on Soft Landing and the Fed

Highlights:

• The EUR/USD hit reverse in the week ending July 21, with bets on a US soft landing weighing.
• However, it will be a choppy week ahead, with the Fed and the ECB delivering interest rate decisions.
• However, prelim private sector PMIs and inflation numbers will also need consideration.

It’s a busy week for the EUR/USD. Prelim private sector PMIs for France, Germany, and the Eurozone kickstart the week on Monday. With recessionary fears lingering, slower service sector growth and a more marked contraction across the manufacturing sector would test buyer appetite.

The German economy will be in focus again on Tuesday and Thursday, with business and consumer sentiment numbers likely to influence.

However, the ECB monetary policy decision and ECB President Christine Lagarde press conference will be the euro area event of the week. While the markets expect a 25-basis point interest rate hike on Thursday, the ECB has remained silent on its post-summer plans. Forward guidance on inflation, the economy, and monetary policy will move the dial.

On Friday, prelim inflation numbers for July will wrap up a busy week. Inflation numbers from France and Germany will need consideration.

The US Week Ahead

Prelim private sector PMI numbers for July will kickstart the week on Monday. We expect the services PMI to have more impact, with the prices, new orders, and employment sub-components needing consideration.

On Tuesday, consumer confidence figures for July will also influence ahead of the FOMC interest rate decision on Wednesday. The markets are betting on a final 25-basis point interest rate hike to end the monetary policy tightening cycle. Any deviation from expectations will move the markets.

A 25-basis point hike will shift the market focus to the Fed Chair Powell press conference.

On Thursday, core durable goods orders and jobless claims will need consideration before a busy Friday session.

Personal spending and Core PCE Price Index numbers will wrap up a busy week. An unexpected pickup in inflationary pressure could test the market bets on the Fed hitting the brakes.

EUR/USD Technical Indicators

Daily Chart

The Daily Chart showed the EUR/USD pullback from the $1.1180 – $1.1221 resistance band to test support at $1.11. A fall to sub-$1.11 would give the bears a run at the $1.1060 – $1.1015 support band. However, a EUR/USD return to $1.1150 would support a breakout from the $1.1180 – $1.1221 resistance band to target $1.13.

Looking at the EMAs, the EUR/USD sat above the 50-day ($1.09585) and 200-day ($1.07670) EMAs, signaling bullish momentum over the near and longer term.

Notably, the 50-day EMA pulled further away from the 200-day EMA, affirming a near-term bullish trend.

Looking at the 14-Daily RSI, the 60.50 reading sent bullish price signals. The RSI aligned with the EMAs, supporting a EUR/USD run at the $1.1180 – $1.1221 resistance band.

4-Hourly Chart

Looking at the 4-Hourly Chart, the EUR/USD sits below the $1.1180 – $1.1221 resistance band and $1.1150.

The EUR/USD also remains below the 50-day EMA ($1.11456) while holding above the 200-day EMA ($1.09924), sending bearish near-term but longer-term signals.

Significantly, the 50-day EMA narrowed on the 200-day EMA, signaling a fall to sub-$1.11 to bring the $1.1060 – $1.1015 support band into view. However, a move through the 50-day EMA ($1.11456) would give the bulls a run at the $1.1180 – $1.1221 resistance band.

The 14-4H RSI at 35.24 sends bearish EUR/USD price signals. Significantly, the RSI aligns with the 50-day EMA, supporting a run at the $1.1060 – $1.1015 support band and the 200-day EMA ($1.09977).