EURUSD Weekly Outlook

The EURUSD pair is hovering near its lowest level in a month as investors reflect on the recent interest rate decision by the Fed on Wednesday. The pair declined to 1.15099, which was a 1.49% decline from its highest price in October at 1.16845.

ECB and German retail sales

President Lagarde stated on Thursday that the ECB is highly unlikely to raise interest rates in 2022 despite the surge in the inflation rate. The president also pushed back on the recent increase in yields. She said that the ECB would continue with the emergency asset purchases to reduce the borrowing costs. This was bearish for the EUR. President Lagarde claimed that undue tightening of financing conditions was undesirable. This is because purchasing power was already being squeezed by increased energy and fuel bills.  

Additionally, German retail sales dropped from 1.2% to -2.5%, which was lower than the projected 0.6%. This was negative for the EUR. More so, German manufacturing PMI fell from the previous 58.4 to 57.8, which was also lower than the anticipated 58.2. This was bearish for the EUR. The European retail sales also declined from 1.0% to -0.3%, which was below the projected 0.3%. This drop was negative for the EUR.

On Tuesday, the German Zentrum für Europäische Wirtschaftsforschung (ZEW), which gauges six-month economic conditions, was optimistic. This was after recording a reading of 31.7, which was higher than the expected 20.0. Despite this optimism, data from the US still point to tough times ahead for the EUR.

US data

On Wednesday, the Fed made its interest rate decision. It decided to maintain the interest rates between 0 and 0.25% until the economy was stable. However, to counter this move, the Fed decided to taper its bond purchases. This action was expected to gradually reduce liquidity in the system. This was bullish for the USD. The tapering was expected to be done at a speed that would enable them to finish bond-buying by mid-2022.

The US Institute of Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) also recorded a reading of 60.8, which was higher than the projected 60.5. This was positive for the dollar. The unemployment rate declined from the expected 4.7% to 4.6%, which was also lower than the previous 4.8%. This was bullish for the USD. ADP nonfarm employment increased from the previous 523k to 571k. This increase was also higher than the projected 400k. Further, initial jobless claims were 269k, which was lower than what experts had projected to be at 275k. This was also lower than the previous 283k.

Moreover, data from the US shows an increase in the Core Consumer Price Index (CPI) from 0.2% to 0.6%. This growth was also above the anticipated 0.4%, which was bullish for the greenback. On Friday, JOLTs will release its job opening survey report. Experts project it to be 10.330M. If the reading is stronger than what the experts are expecting, it will be supportive of the buck. 

EURUSD technical analysis

The four-hour chart below indicates that a bearish trend has been emerging lately. For one, the chart appears to be forming a double top, which is a bearish signal. The Relative Strength Index (RSI) was also moving below 50 and almost closing below 30, which shows a bearish momentum. Additionally, the pair was trading below the 20-day and 50-day Moving Averages (SMAs). This is usually a bearish signal.             

A golden cross appears to be imminent in the near future. If this happens, it will invalidate the bearish trend. In case the pair goes bullish, the next level to watch will be the psychological resistance at 1.15500, which has on several occasions been a support level for the pair.