EUR/USD Weekly Forecast: ECB dovish amid easing inflation

• The US economy remains resilient despite high interest rates.

• The data raised the likelihood of a gradual cycle of Fed rate cuts.

• Inflation in the euro zone fell from 2.6% to 2.2%, approaching the central bank’s target.

The EUR/USD weekly forecast shows more downside potential as lower euro zone inflation points to a more accommodative ECB.

EUR/USD Ups and Downs

EUR/USD had a bearish week, the dollar strengthened while the euro eased. Data during the week showed that the US economy remains resilient despite high interest rates. Consumer confidence rose and the economy grew by 3.0%. Meanwhile, inflation held steady at 0.2%. Consequently, this increased the likelihood of a gradual Fed rate cut cycle, boosting the dollar.

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Meanwhile, euro zone inflation fell from 2.6% to 2.2%, moving closer to the central bank’s target. As a result, investors are more confident that the European Central Bank will cut interest rates again in September.

Next week’s key events for EUR/USD

Next week, investors will focus on data on manufacturing activity and the monthly US employment report. In particular, the manufacturing sector underperformed compared to the services sector, remaining in contraction. Economists expect a slight improvement from 46.8 to 47.8.

Meanwhile, the non-farm payrolls report will show the state of the labor market, a key sector of the US economy. The latest report showed big cracks as the unemployment rate rose and job growth slowed. It raised fears of a looming recession and raised expectations of Fed rate cuts. Another such report could raise expectations for an aggressive Fed rate cut cycle, boosting the euro against the dollar.

EUR/USD Weekly Technical Forecast: Bulls stall for short pullback

From a technical point of view, the EUR/USD price is falling after reaching a new high near the critical 1.1200 level. However, it is still in a bullish trend, sitting above the 22-SMA with RSI above 50. Therefore, although the bears have taken control, it could only be temporary.

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Price is approaching the 22-SMA support, where it could break out and bounce back higher. However, the last time the bears retested the SMA, the price broke through the line before reversing. Consequently, this could happen again. If it does, the price could find support at other levels, including the 0.5 Fib, the 1.1001 support and the bullish trend line. However, if the price breaks below all these levels, it will indicate a new bearish trend.

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