• The US economy remains resilient despite high interest rates.

• Data increased the likelihood of a gradual Fed rate-cutting cycle.

• Inflation in the Eurozone eased from 2.6% to 2.2% moving closer to the central bank’s target.

The EUR/USD weekly forecast shows more downside potential, as easing Eurozone inflation points to a more dovish ECB.

Ups and downs of EUR/USD

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

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Meanwhile, inflation in the Eurozone eased 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 rates again in September.

Next week’s key events for EUR/USD

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

Meanwhile, the nonfarm payrolls report will show the state of the labor market, a key sector in the US economy. The last report showed big cracks as the unemployment rate jumped and job growth slowed. It raised fears of a looming recession and increased Fed rate cut expectations. Another such report could increase expectations for an aggressive Fed rate-cutting cycle, boosting the euro against the dollar.

EUR/USD weekly technical forecast: Bulls stall for a brief pullback

On the technical side, the EUR/USD price is falling after reaching a new high near the 1.1200 critical level. Nevertheless, it is still in a bullish trend, sitting above the 22-SMA with the RSI above 50. Therefore, although bears have taken over, it might only be temporary.

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

https://www.forexcrunch.com/blog/2024/08/31/eur-usd-weekly-forecast-ecb-dovish-amid-easing-inflation/