EUR/USD Weekly Forecast: US PCE inflation in the spotlight after FOMC Minutes

The EUR/USD pair halted its recovery and finished the week with modest losses in the 1.0840 region, meeting sellers just ahead of the 1.0900 mark. The US Dollar pushed higher for most of the week but was unable to post substantial gains, given speculation the Federal Reserve (Fed) will delay rate cuts as much as it can.

What happened with the US Dollar?

Fed speakers flooded the news wires throughout the week but had no impact on prices as they repeated well-known messages. However, the Federal Open Market Committee (FOMC) imprinted some life on markets on Wednesday with the release of the Minutes of the May Fed meeting.

The document showed policymakers are in no rush to cut rates, and with some tailwind, the first one may come in September. Furthermore, some policymakers showed a willingness to tighten further, a line that spurred risk aversion and temporarily benefited the Greenback. The latter also benefited from upbeat macroeconomic figures, as the United States (US) published Initial Jobless Claims for the week ended May 17, which declined to 215K from the previous 223K, and better than the 220K anticipated by market participants. Also, S&P Global released the preliminary estimates of the May Purchasing Manager Indexes (PMIs), which showed business activity growth accelerated sharply to its fastest rate in just over two years in May, according to provisional data. The  Composite PMI improved to 54.4 from 51.3 in April, while the Manufacturing PMI recovered to 50.9 after printing 50 in the previous month. Finally, the services index jumped to 54.8, its highest in a year.

The EUR/USD pair bottomed for the week at 1.0804 on Thursday, recovering ahead of the weekly close as speculative interest is not in the mood to buy the USD.

Why can’t the Euro run?

Meanwhile, the Euro could not take advantage of the broad US Dollar weakness despite encouraging local data. The Hamburg Commercial Bank (HCOB) unveiled the preliminary estimates of the May Purchasing Managers Indexes (PMIs) for the region. The survey showed German business activity rose for a second consecutive month, and at a faster rate. The Eurozone economic recovery also gathered momentum in May, while rates of inflation of both input costs and output prices softened from April. The EU Composite PMI hit 52.3 its highest in twelve months, while the German index printed at 52.2, also a one-year peak.

Other than that,  Germany confirmed the Q1 Gross Domestic Product (GDP) growth at 0.2% QoQ, while Consumer Confidence in the Eurozone improved to -14.3 in May from -14.7 previously, according to preliminary estimates.

What actually prevents the Euro from rallying against its American counterpart is the European Central Bank (ECB). ECB officials are aligned behind a June rate cut. There’s no discussion on that. Some members are a bit more cautious, referring to the need for data to confirm so. Others are more hawkish and pretty much grant the move. In fact, the focus has now shifted to July and whether the ECB will deliver a second rate cut by then.

ECB Board member Isabel Schnabel said on Friday that “depending on incoming data rate cut in June may be appropriate but a path beyond June is much more uncertain.”

As a result, a June rate cut is fully priced in. But it’s worth remembering that it will have a strong negative impact on the Euro, which prevents speculative interest from happily jumping into buying it.

Inflation under the spotlight

The upcoming week will provide investors with additional clues about economies’ health and future central banks’ actions. The focus will be on inflation as the US releases the April Personal Consumption Expenditures (PCE) Price Index, the Fed’s favorite inflation gauge. Across the pond, Germany and the EU will publish the preliminary estimates of the May Harmonized Index of Consumer Prices (HICP).

Less relevant, Germany will unveil the May IFO Survey on Business Climate, while the US will release a revision of the Q1 GDP.

And, of course, multiple policymakers will be on the wires, although it seems hard their comments will have a relevant impact on EUR/USD.

EUR/USD technical outlook

According to the weekly chart, the EUR/USD pair is neutral from a technical point of view. Technical indicators are turning marginally lower within neutral levels, completely erasing the positive momentum seen at the beginning of the month. At the same time, the pair hovers midway between directionless 100 and 200 Simple Moving Averages (SMAs), with the shorter one providing dynamic support at around 1.0640. Finally, the pair spent the week stuck to a flat 20 SMA, another indication of absent directional strength.

On a daily basis, however, buyers seem to be gaining confidence. Technical indicators are timidly recovering their upward slopes after correcting overbought conditions and approaching their midlines. Furthermore, the 20 SMA maintain its bullish slope and is currently crossing above a flat 200 SMA. Finally, the 100 SMA provides dynamic support in the 1.0810 price zone, with buyers surging around the level in the last three days.

A clear advance beyond the 1.0900 threshold is critical to support the bullish case, with the next resistance area at 1.0980 - 1.1000. Beyond the latter, EUR/USD could extend its gains towards the 1.1120 region. On the other hand, the pair would need to pierce the 1.0800-1.0810 region to experience a decline, with the next relevant support level at 1.0720.