EUR/USD Weekly Forecast: Bears add ahead of the US Nonfarm Payrolls report

• The US Dollar resumed its advance after data showed the US economy remains healthy.
• Looming European Central Bank’s and Federal Reserve’s meetings fuel a cautious mood.
• EUR/USD nears a bearish breakout point after flirting with year-to-date highs around 1.1200.

The EUR/USD pair was unable to conquer the 1.1200 mark, and after flirting with the level at the beginning of the week, it entered a downward corrective spiral that resulted in the pair ending the week not far above the 1.1053 low.

US Dollar reclaims its crown

The US Dollar remained under pressure until Wednesday, when a souring market mood spurred demand, later fueled by upbeat macroeconomic figures. On Thursday, the United States (US) reported that the annualised Gross Domestic Product (GDP) growth for the second quarter was 3%, higher than the previously estimated  2.8%. Furthermore, unemployment claims rose by less than anticipated in the week ended August, printing at 231K. Finally,  the US published the July Personal Consumption Expenditures (PCE) Price Index on Friday, which remained steady at 2.5% YoY, slightly better than the 2.6% anticipated. On a monthly basis, the PCE Price Index rose 0.2%, matching expectations. The annual core PCE Price Index rose 2.6%, slightly better than the 2.7% expected but matching the June outcome.

Not only did the figures match expectations, but they also had no impact on speculation about by how much the Federal Reserve (Fed) would trim interest rates when it meets in September. The figures do not shed light on whether American policymakers will go for a 25 or 50 basis points (bps) cut, which is the only pending uncertainty among speculative interest.

A resilient US economy may not be a surprise but indeed is welcomed news. The fact that speculative interest has already priced in an interest rate cut alongside upbeat macroeconomic outcomes fueled demand for the USD currency at the end of the week.

Eurozone inflation supporting ECB’s path

Things also improved in the Eurozone, as Germany released the preliminary estimates of the August inflation data, which surprised investors by falling more than anticipated. The Consumer Price Index (CPI) rose 1.9% YoY, below the 2.1% anticipated, while the CPI was down 0.1% compared to the previous month. The broader Harmonized Index of Consumer Prices (HICP) increased by 2.0% in the year to August and fell by 0.2% compared to July.

The Eurozone HICP, however, met expectations, rising by 2.2% in August, down from the 2.6% posted in July. The monthly increase printed at 0.2%, higher than the previous 0.0%. Finally, the core annual HICP hit 2.8%, meeting estimates.

The figures support the case for another European Central Bank (ECB) rate cut in September, something speculative interest has already priced in.

Data-release intensifies

The upcoming week will bring some relevant macroeconomic figures ahead of central banks’ announcements. The ECB will decide on monetary policy on September 12, while the Federal Reserve Fed will do the same on September 18.

The US calendar will feature the August ISM Manufacturing Purchasing Managers Index (PMI) on Tuesday, with the index foreseen at 47.8, improving from the 46.8 posted in July. The Services PMI will be out on Thursday and is expected at 51.5.

Also, the country will release employment-related figures throughout the week, including JOLTS Job Openings, the ADP Employment Change report,  and Challenger Job Cuts, ahead of the August Nonfarm Payroll (NFP) report on Friday. At the time being, the country is expected to have added 163K new jobs in the month after gaining 114K in July. The Unemployment Rate is foreseen at 4.2%, down from the previous 4.3%.

The Eurozone will also offer some interesting figures, as it will publish July Producer Price Index (PPI) figures, Retail Sales for the same month, and a Gross Domestic Product (GDP) update. As for Germany, the focus will be on Factory Orders and Industrial Production for July.

EUR/USD technical outlook  

The corrective decline could continue should EUR/USD extend its slide below the 1.1050 region. The weekly chart shows that the pair is battling to hold above a mildly bearish 200 Simple Moving Average (SMA), after breaking above it for the first time in over a year last week. The 20 and 100 SMAs maintain their bullish slopes well below the current level, limiting the odds for a steeper decline but being little relevant at the time being. Finally, technical indicators aim south within positive levels, skewing the risk to the downside.

The daily chart for EUR/USD shows the downward momentum is building up. Technical indicators head firmly lower, retreating from extreme overbought readings but still holding above their midlines. A bullish 20 SMA stands around 1.1045, further supporting the case of a bearish extension once the area gives up. Finally, the 100 and 200 SMAs maintain modest upward slopes but are too far below the current level to be relevant.

An extension below 1.0990 could see the pair falling towards 1.0950 en route to the 1.0910 region. On the other hand, resistance can be found at 1.1100 and 1.1145, with a clear advance above the latter exposing the 1.1200 threshold.