EUR/USD Weekly Forecast: Neutral Outlook Ahead of ECB
By Yohay Elam, originally published on Forex Crunch
The EUR/USD currency pair ended the past trading week with modest gains, showing resilience despite economic uncertainty and mixed data from the United States and the eurozone. As investors gear up for the upcoming European Central Bank (ECB) policy meeting, the pair is stuck in a tight range, reflecting a neutral bias in the short term.
The latest price action and economic dynamics suggest that EUR/USD may continue to consolidate in the near term unless a major catalyst, such as a significant shift in ECB guidance or unexpected data, emerges. This article offers an in-depth analysis of the recent movements, key economic indicators, and upcoming events that could shape the direction of the EUR/USD pair.
Price Action and Technical Overview
EUR/USD closed the week near the 1.0900 level after experiencing modest intraday volatility, driven primarily by broader risk sentiment and macroeconomic data from both sides of the Atlantic.
– Support levels remain intact near 1.0840 and 1.0780.
– Resistance is seen at the recent swing high of 1.0960, followed by the psychological 1.1000 level.
– The 50-day simple moving average (SMA) is acting as dynamic support beneath the current trading zone.
– RSI (Relative Strength Index) remains close to 50, reflecting the pair’s consolidative and neutral stance.
Overall, technical indicators continue to signal a lack of clear momentum, suggesting that markets are waiting for a fundamental driver to determine the next directional move.
Fundamental Drivers and Key Economic Events
The EUR/USD pair was influenced by a mix of ECB expectations, U.S. economic data, and broader themes such as inflation trends and geopolitical developments. Let’s examine the most recent fundamental drivers.
1. U.S. Economic Data
The Federal Reserve has maintained its higher-for-longer interest rate stance, citing persistent inflation and a relatively robust labor market. However, recent macroeconomic data revealed some signs of easing growth momentum.
– Retail sales data for June came in below expectations, showing a decline in consumer spending.
– The Philadelphia Fed manufacturing index slipped further into contraction territory, although the impact on the dollar was muted.
– Jobless claims data edged higher, signaling some loosening in labor market conditions.
Still, the overall economic narrative from the U.S. remains mixed. While inflation has moderated somewhat, it remains above the Fed’s 2 percent target. Traders are currently pricing in fewer expectations of aggressive rate cuts before the end of the year.
2. Eurozone Economic Landscape
The eurozone economy is exhibiting signs of weakness, particularly within the manufacturing sector. However, the ECB has remained cautious in its tone. The central bank faces the challenge of balancing sluggish economic growth with stubborn core inflation in certain member states.
– Eurozone CPI data showed a marginal decline in headline inflation, in line with expectations.
– Core inflation, however, remained sticky, justifying the ECB’s cautious approach to policy easing.
– Industrial production and manufacturing surveys pointed to prolonged economic stagnation across major economies like Germany and France.
The recent minutes from the ECB indicated that members were divided on the timing and extent of rate cuts. Some policymakers expressed concern over the inflation outlook, while others emphasized the need to boost economic activity.
ECB Meeting Preview: What to Expect
The highlight for the upcoming week will be the ECB policy decision. While no major policy shift is anticipated, markets will be closely monitoring the central bank’s tone and guidance on future actions.
Key things to watch during the ECB meeting:
– Rate Guidance: The ECB is expected to keep its key interest rate unchanged. However, guidance on future cuts could impact the euro’s performance.
– Inflation Outlook: Any revision to the inflation forecast could sway market sentiment.
– Economic Growth Projections: Downward revisions may highlight the eurozone’s fragile economic recovery.
– Press Conference:
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