EUR/USD Weekly Forecast: A better mood puts pressure on the US Dollar

• Federal Reserve officials flooded the newsfeeds but failed to trigger a reaction.
• Timid signs of European recovery fell short of boosting the Euro.
• EUR/USD maintains a neutral tone below 1.0800, bulls add slowly.

An uneventful week ended with some more action, as choppy trading prevailed until Thursday. The EUR/USD pair seesawed in a tight range just above the 1.0700 threshold for most of the week, with the US Dollar (USD) finally giving up and extending its slide while heading into the weekly close.

In the absence of a major catalyst, market participants reacted to the United States (US) weekly employment report. Seasonally adjusted Initial Jobless Claims jumped to 231K in the week ending May 3, the highest reading since November 2023 and an increase of 22K from the previous revised level. The 4-week moving average rose to 215K, all of which suggested some loosening in the labor market, reviving hopes the Federal Reserve (Fed) may speed up rate cuts. Stocks rallied with the news, extending gains in the last trading day of the week to the detriment of the Greenback.

On Friday, the US released the preliminary May Consumer Sentiment, as measured by the University of Michigan. Consumer confidence in the US fell in May, with the Index plummeting to 67.4 from 77.2 in April. Also, the reading missed the market expectation of 76.  The Current Conditions Index declined to 68.8 from 79 in the previous month. More worrisome, 1-year inflation expectations were up to 3.5% from 3.2% previously, while 5-year inflation expectations increased to 3.1% from 3.0%.

Other than that, data was scarce, as said. The Euro was unable to take advantage of encouraging growth-related figures. The Hamburg Commercial Bank (HCOB)  released the April Purchasing Managers Indexes (PMIs) final estimates, most of which were upwardly revised. The Eurozone final Services PMI was confirmed at 53.3, while the Composite Index came in at 51.7, indicating economic expansion at the beginning of the second quarter. The EU also reported that the Producer Price Index (PPI) declined 0.4% MoM and 7.8% YoY. The monthly figure was slightly above expected, but anyway, the negative outcome came as a relief for those concerned about inflationary pressures. Finally, EU Retail Sails were up 0.8% in March, beating expectations.

Fed speakers flood the news

Meanwhile, multiple Fed speakers hit the wires throughout the week. Hawks remained hawkish, and doves repeated their cautious visions. What all of them had in common was the lack of freshness. No one was able to impress market players and trigger some action across the FX board. Overall, Fed officials reiterated that they would need more confidence in inflation easing towards the 2% goal before pulling the trigger, while the more gloomy perspectives believe there’s a risk of trimming rates too soon. At least all agree that economic progress is on a good path.

The one thing we learned this week is that market participants acknowledged that central banks will keep rates at current levels for as long as possible but are still longing for widespread rate cuts.

Inflation under the spotlight

Inflation will take centre stage next week, as the US will release the April Consumer Price Index (CPI) on Wednesday, foreseen at 0.3% MoM, easing from the previous 0.4%. During the week, the country will also release the April PPI and Retail Sales data for the same month.

Across the Atlantic, investors will be looking at the final estimate of the German Harmonized Index of Consumer Prices (HICP) on Tuesday, expected to be confirmed at 2.4% YoY, and the second estimate of the EU Q1 Gross Domestic Product (GDP) on Wednesday, previously estimated at 0.3% QoQ.  Finally, on Friday, the EU will unveil the April HICP, seen at 2.4% YoY.

EUR/USD technical outlook

From a technical point of view, EUR/USD made little progress these days, as it held below the previous weekly high at 1.0811. The pair posted modest gains for a fourth consecutive week, but bulls seem to lack conviction. EUR/USD develops below a bearish 20 Simple Moving Average (SMA), providing dynamic resistance just above the 1.0800 mark. At the same time, the 200 SMA aims marginally lower at around 1.1130, while a flat 100 SMA provides support in the 1.0630 region. Finally, technical indicators have pared their recoveries around their midlines and turned flat, in line with the absence of directional conviction.

Technical readings in the daily chart offer a similar perspective. Disregarding Thursday’s bullish run, EUR/USD remained confined to tight intraday ranges. Furthermore, a bearish 200 SMA attracts sellers around 1.0800, further reinforcing the relevance of the level. At the same time, the 100 SMA maintains its downward slope above the longer one. There are, however, modest bullish signs emerging, yet to be confirmed: The 20 SMA turned north below the current level, while technical indicators aim modestly higher within positive levels, although lacking strength enough to confirm an upcoming advance.

Beyond the 1.0810 region, bulls should find resistance around 1.0890, while beyond the latter, the next line of sellers could come in the 1.0980 - 1.1000 area. Critical support lies at 1.0700, followed by 1.0650 and the year’s low at 1.0600.