EUR/USD Weekly Forecast – Bears Eye Sub-$1.07 on PMIs and Inflation

It is a busy week ahead for the EUR/USD., with private sector PMIs and the German economy in the spotlight.

Eurozone consumer confidence numbers for May kickstart the week. An unexpected slump in confidence would weigh on the EUR/USD. Sticky inflation and an elevated interest rate environment could test investor sentiment and signal a shift in spending plans.

Prelim private sector PMIs for France, Germany, and the Eurozone will provide direction on Tuesday. A more marked contraction in the German manufacturing sector would weigh on the EUR/USD and question the ECB economic outlook following the weak German factory orders and industrial production numbers.

On Wednesday, the German Ifo Business Climate Index and sub-components will draw interest ahead of German Q1 GDP and GfK Consumer Climate numbers on Thursday.

With private sector activity and the German economy in the spotlight, investors should monitor ECB commentary.

With a busier economic calendar, investors should also consider ECB commentary. Executive Board members Andrea Enria (Tues/Fri), Luis de Guindos (Mon/Tues/Thurs), Frank Elderson (Mon), ECB Chief Economist Philip Lane (Mon/Fri), and ECB President Christine Lagarde (Wed) are on the calendar to speak.

EUR/USD Technical Indicators

The EUR/USD needs to move through the $1.0823 pivot to target the First Major Resistance Level (R1) at $1.0887 and last week’s high of $1.09046. A return to $1.0850 would signal a bullish week. However, economic indicators, central bank commentary, and debt ceiling-related news need to deliver EUR support to give the bulls a run at $1.10.

In the case of a breakout week, the EUR would likely test resistance at the Second Major Resistance Level (R2) at $1.0968 and resistance at $1.10. The Third Major Resistance Level (R3) sits at $1.1113.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.0742 in play. In case of a data and US debt ceiling-fueled sell-off, the EUR/USD would likely test the Second Major Support Level (S2) at $1.0678.

The Third Major Support Level (S3) sits at $1.0533.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The EUR/USD sits below the 50-day EMA, currently at $1.08685. The 50-day EMA fell back from the 100-day EMA, with the 100-day EMA crossing through the 200-day EMA, delivering bearish signals.

A move through the 50-day EMA ($1.08685) would support a breakout from R1 ($1.0887) to target the 100-day ($1.09098) and 200-day ($1.09115) EMAs and R2 ($1.0968).

However, failure to move through the 50-day EMA ($1.08685) would leave S1 ($1.0742) and sub-$1.07 Major Support Levels in play. A move through the 50-day EMA would send a bullish signal.

The US Week Ahead

Prelim private sector PMIs for May kickstart the week on Tuesday. While weaker private sector PMI numbers would fuel recessionary jitters, investors should consider the sub-components. The employment, input and output price inflation, and new order trends will draw interest.

On Wednesday, the FOMC meeting minutes will influence ahead of GDP and jobless claims on Thursday.

US Core PCE Price Index and personal spending/income numbers wrap up a busy week. Sticky inflation would fuel bets on a June interest rate hike.

With the economic calendar on the busy side, investors should also consider FOMC member chatter and US debt ceiling-related news.

US President Joe Biden and Speaker of the House Kevin McCarthy will begin talks as early as today. FOMC members Bostic and Barkin will be in focus on Monday.