EUR/USD Weekly Forecast: The Fed Cannot Remain Cautious Anymore
● The US Federal Reserve will publish the Minutes of its latest meeting.
● Summer doldrums will probably maintain major pairs ranging next week.
● EUR/USD has bounced from around 1.1700, but bears retain control.
The EUR/USD pair ends the week with modest gains, although below the 1.1800 level, and close to the low set at 1.1705. The dominant bearish trend was interrupted on Wednesday, following the release of US inflation figures. The Consumer Price Index was confirmed at 5.4% YoY, while the core reading for the same period was downwardly revised to 4.3%, as expected. Still high, the numbers suggest that inflation may have reached a peak and that the US Federal Reserve is right on taking it slow on tapering.
Feds Dual Mandate
However, the Producer Price Index in the country came in at 7.8% YoY in the same month, up from 7.3% previously, reviving tightening speculation and stopping the dollars decline. Even further, weekly unemployment claims contracted to 375K in the first week of August, following an impressive July Nonfarm Payroll report. The US Federal Reserve has a dual mandate of price stability and maximum sustainable employment.
The central bank has been trying to cool down tightening expectations by saying that heating inflation will likely be temporary and resting on the tepid progress in the job sector to maintain the ultra-loose monetary policy. Inflation may have finally peaked – August figures will confirm or deny it – while employment recovery is picking up. The Fed cannot maintain its patient stance if August data is once again upbeat.
EUR/USD Technical Outlook
The EUR/USD pair has bottomed a couple of pips above its March low at 1.1703, bouncing just modestly afterwards. According to the weekly chart, the pair retains its bearish stance and needs to break below the 1.1700 price zone to confirm a steeper decline. In the mentioned time frame, the pair keeps developing below its 20 SMA, which has partially lost its bearish strength. The longer moving averages converge around 1.1530, while technical indicators head south within negative levels, reflecting bears dominance.
Technical readings in the daily chart also show that sellers retain control. A bearish 20 SMA provides dynamic resistance at around 1.1800 while developing well below the longer ones, which lack directional strength. Meanwhile, the Momentum indicator stands pat below its midline, while the RSI recovers from oversold readings, currently around 45.
A break below the 1.1700 level should trigger a downward extension toward the 1.1600/40 area, while further declines should expose the 1.1520 level. Above 1.1800, the next resistance levels come at 1.1840 and 1.1920, with approaches to the latter probably attracting selling interest.