• The euro has had a good run amid signs that the US economy is slowing down and inflation is easing.
• Data showed that US manufacturing output unexpectedly fell in April.
• ECB’s Schnabel emphasized caution after June as the outlook remains uncertain.

The EUR/USD outlook leans slightly bearish as the euro experiences a pullback following its recent rally. Despite this dip, the currency is on track for its largest weekly gain against the dollar in over two months. For the week, it is up 0.8%.

The euro has had a good run amid signs that the US economy is slowing down and inflation is easing. April’s inflation figures fell from the previous month, giving investors and policymakers hope that the downtrend from Q4 last year was still in place.

Furthermore, data has revealed a continuing slowdown in the US economy, starting with the labor market. Meanwhile, retail sales figures came in flat, well below forecasts. Similarly, data showed that manufacturing output unexpectedly fell in April. This decline in economic activity indicates a drop in demand due to high interest rates. Therefore, there is more pressure on the Federal Reserve to start cutting interest rates.

Meanwhile, the situation in the Eurozone is the opposite. Although policymakers are set on implementing the first cut in June, there is less pressure to do that because the economy is improving. Notably, Germany’s economy expanded more than expected last quarter. At the same time, investor morale in the Eurozone is at a two-year high.

Elsewhere, ECB’s Isabel Schnabel said the central bank will cut rates in June. However, she emphasized caution after that as the outlook remains uncertain.

EUR/USD key events today

After a week packed with high-impact events, the pair might finish quietly, as no significant events are coming from the US or the Eurozone.

EUR/USD technical outlook: Pullback after testing channel resistance

On the technical side, the EUR/USD price is pulling back from its bullish channel resistance. However, the bullish bias remains intact as the price is still within a bullish channel and above the 30-SMA. Moreover, although the RSI has pulled back from the overbought region, it trades above 50, supporting bullish momentum.

Therefore, the pullback might pause at three major support levels. Bulls might emerge at the 30-SMA support line, the 1.0800 support level, or the channel support line. A bullish reversal at any of these levels would allow the price to target the 1.0900 level.

https://www.forexcrunch.com/blog/2024/05/17/eur-usd-outlook-euro-heads-for-best-week-in-over-2-months/