EUR/USD Weekly Forecast – Bears Eye $1.0850 on Sticky US Inflation

Highlights:

• The EUR/USD slipped by 0.05% in the week ending August 4, with the US Jobs Report and surge in German factory orders reversing earlier losses.
• However, it is a busy week ahead, with US economic indicators likely to impact sentiment toward the September Fed interest rate decision.
• It will likely come down to the US CPI Report on Thursday.

It’s a quieter week for the EUR/USD. On Monday, German industrial production numbers will draw interest. Factory orders defied gravity for a second consecutive month in June. The numbers suggest a sharp increase in production that would contrast with the latest manufacturing PMI survey-based figures.

Other stats include finalized inflation figures from Germany, France, and Spain. We expect EUR/USD sensitivity to revisions.

From the ECB, the ECB Economic Bulletin will also move the dial. Investors need clues on what’s next from the ECB.

The US Week Ahead

The US CPI Report and weekly jobless claims figures will move the dial on Thursday. While recent labor market numbers suggest a softening in labor market conditions, the US unemployment rate and wage growth remain bugbears for the Fed. A hotter-than-expected CPI Report would fuel bets on a Fed rate hike and reignite recessionary jitters.

At the end of the week, investors must also consider producer price index numbers and Michigan Consumer Sentiment figures.

Other stats include trade data (Tue) that should have a limited impact on the dollar and market risk sentiment.

Beyond the numbers, FOMC member chatter will also move the dial.

EUR/USD Technical Indicators

Daily Chart

The Daily Chart showed the EUR/USD break through the 50-day EMA (1.09730) to test resistance at the $1.1060 – $1.1015 resistance band. After the bullish Friday session, the EUR/USD remained above the 50-day ($1.09730) and 200-day ($1.07897) EMAs, sending bullish near and longer-term price signals.

A hold above the 50-day EMA would support a move through the $1.1015 – $1.1060 resistance band to target $1.11. However, a fall through the 50-day EMA would bring the $1.0900 – $1.0850 support band into play.

Looking at the 14-Daily RSI, the 49.68 reading sent a moderately bearish price signal. The RSI suggests a fall through the 50-day EMA ($1.09730) to bring the $1.0900 – $1.0850 support band into view.

4-Hourly Chart

Looking at the 4-Hourly Chart, the EUR/USD hovers below the $1.1060 – $1.1015 support band.

However, the EUR/USD remains above the 50-day ($1.10027) and 200-day ($1.10019) EMAs, sending bullish near and bullish longer-term signals.

Significantly, the 50-day EMA converged on the 200-day EMA. A bearish cross of the 50-day EMA through the 200-day EMA would bring the $1.0900 – $1.0850 support band into view. However, a EUR/USD move through the lower level of the $1.1015 – $1.1060 support band would support a EUR/USD breakout from the $1.1015 – $1.1060 resistance band to give the bulls a run at $1.11.

The 14-4H RSI at 56.50 sends bullish EUR/USD price signals. Significantly, the RSI aligns with the 50-day EMA, supporting a move through the $1.1015 – $1.1060 resistance band to target $1.11.