EUR/USD Weekly Forecast: US GDP and ECB announcement in the docket

The EUR/USD pair lost the 1.0900 threshold this last week as a souring market mood backed the US Dollar. Financial markets base their decisions on two main reasons. On the one hand, investors pulled some bets from the table on the United States (US) cutting rates next March as economic data indicated the local economy remains resilient. On the other hand, tepid Chinese data and turmoil in the local housing sector spurred concerns, pushing investors away from high-yielding equities.

A continued decline in sales and investments in properties in China is about to turn two years old.  The National Bureau of Statistics of China (NBS) reported that new home prices fell by 0.2% YoY in November, down for a fifth consecutive month. Prices have been declining pretty much since May 2022, with just one positive reading in between. As a result, markets are concerned about a potential hard landing in the country and its negative impact on other major economies.

US resilient economy

 Meanwhile, macroeconomic releases from the US and the Eurozone highlighted the imbalances between the two economies.

Real Gross Domestic Product (GDP) in Europe declined by 0.3% through 2023, according to the Federal Statistics Agency Destatis. The ZEW Survey showed the assessment of the current situation deteriorated further in January, with the index down to -77.3, although the Economic Sentiment improved to 15.2 in the country and to 22.7 in the EU. Additionally, Germany confirmed the Harmonized Index of Consumer Prices (HICP) rose 3.8% YoY in December, while the EU HICP in the same period increased 2.9% as previously estimated.

Across the pond, the US reported a solid 0.6% MoM increase in Retail Sales in December and a decline in unemployment claims, printing 187K in the week ended January 12. Finally,  Industrial Production was better than anticipated in December, ticking 0.1% higher. On a negative note, manufacturing-related figures came in below expectations, reflecting the sector’s well-known weakness.

Growth and inflation in the eye of the storm

Next week, S&P Global will release the preliminary estimates of the January Purchasing Manager Indexes (PMIs), while the US will publish the first estimate of the Q4 Gross Domestic Product (GDP). The economy is expected to have grown at an annualized pace of 1.8%, following a 4.9% gain in the previous quarter. Also, the country will release the December Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve's (Fed) favorite inflation gauge.

Next week's main event will be the European Central Bank (ECB) monetary policy decision. European policymakers are widely expected to keep the current policy unchanged. Furthermore, speculative interest is well aware officials will hardly deliver clues on future decisions. All in all, it could be a non-event, but there is always hope President Christine Lagarde could say something relevant.

Across the pond, Fed officials enter the blackout period ahead of the policy meeting scheduled for January 30. It is worth adding that Fed officials have poured cold water on a potential rate cut in March, with the odds down to 52% from over 70% a couple of weeks ago.

EUR/USD technical outlook

The EUR/USD pair stands near a fresh multi-week low of 1.0844 and seems poised to extend its decline. The weekly chart shows it pulled further lower after testing a flat 200 Simple Moving Average (SMA) by the end of December, now approaching a mildly bullish 20 SMA. The latter provides dynamic support at around 1.0770, while the 100 SMA heads marginally lower below the shorter one. Meanwhile, the Momentum indicator is flat within positive levels, while the Relative Strength Index (RSI) indicator anticipates a continued slide as it heads south at around 52.

Bears retain control according to the daily chart. The pair is little changed for a third consecutive session after plummeting at the beginning of the week, consolidating just above a flat 200 SMA, which provides support at around 1.0845. The 20 SMA, in the meantime, accelerated its decline well above the current level, reflecting increased selling interest. Finally, technical indicators stand within negative territory with uneven strength, not enough to suggest a directional change.

EUR/USD has room to test the 1.0700 threshold once below the aforementioned 1.0845 level. Additional declines seem unlikely, although a break through the threshold could end up in an approach to 1.0640. On the contrary, sellers are defending the upside at around 1.0900, with bulls having better chances once EUR/USD overcomes 1.0960. Beyond the latter, the recovery can extend towards the 1.1020/40 price zone.