EUR/USD Weekly Forecast: EU and US economic health measures take centre stage
- Easing US political and trade tensions lifted the market’s mood at the end of the week.
- The US and the EU will release inflation, growth and employment updates.
- EUR/USD retains its bullish stance despite ending the week in the red.
The EUR/USD pair soared to 1.1573, its highest since November 2021, but shed over 300 pips ahead of the weekly close, ending it up with modest losses. The US Dollar (USD) was sold off throughout the first half of the week amid panic about the future of the American economy following the latest White House developments. Concerns, however, receded as the days went by, helping the USD recover the lost ground.
What happened?
Investors dropped the Greenback amid mounting speculation United States (US) President Donald Trump would fire Federal Reserve’s (Fed) Chairman Jerome Powell. Additionally, the lack of progress in trade talks with China and the related fears of an economic slowdown added to the USD broad weakness.
Wall Street collapsed, but the USD remained on the back foot, with Gold getting the most out of safe-haven demand and reaching record highs in the $3,500 region.
As time went by, however, concerns cooled. President Trump said on Wednesday that he does not aim to dismiss Powell but instead that he is frustrated with high interest rates. Meanwhile, de-escalating tensions between Washington and Beijing allowed financial markets to breathe ahead of the close.
On the one hand, the White House mentioned that triple-digit tariffs could come “substantially” down, while China announced it is considering easing tariffs on some US imports on Friday, further supporting the improved mood.
Still, and despite the improved sentiment ahead of the weekly close, markets are far from being optimistic. Macroeconomic data showed economic progress has stalled due to persistent growth-related concerns. S&P Global published the preliminary estimates of the April Purchasing Managers’ Indexes (PMIs) for most major economies, most of which contracted by more than anticipated. The European figures, published alongside with the Hamburg Commercial Bank (HCOB), showed that business output remained in contraction territory, with the Eurozone (EU) Manufacturing PMI printing at 48.7 and the Services output index resulting at 49.7. The Composite PMI came in at 50.1, easing from the 50.9 posted in March.
US data came in mixed, with the Manufacturing PMI resulting at 50.7 and the Services index printing at 51.4. The Composite PMI resulted at 51.2, matching the March reading.
Meanwhile, the Euro (EUR) found support on upbeat German data as the IFO survey on Business Climate posted an unexpected improvement in April, hitting 86.9. The Current Assessment and Expectations were also better than anticipated.
Finally, it is worth adding that US Durable Goods Orders rose 9.2% in March, beating the 2% expected and the previous 0.9%. The Michigan Consumer Sentiment Index was at 52.2 in April, higher than the preliminary estimate of 50.8.
What’s next?
In the upcoming days, the macroeconomic calendar will bring multiple first-tier figures that can rock EUR/USD. Germany will publish the preliminary estimate of the Q1 Gross Domestic Product (GDP) on Wednesday, expected to report a 0.2% advance in the first quarter of the year. The EU will release its own Q1 GDP on the same day, and it is also foreseen at 0.2%.
On the same day, Germany will also release the preliminary estimate of the April Harmonized Index of Consumer Prices (HICP), while the US will complete the day with the April ADP Employment Change report and the March Consumer Price Index (CPI).
The US will release the April ISM Manufacturing PMI on Thursday, while on Friday, the EU will unveil HICP figures and the US will publish the April Nonfarm Payrolls report.
Beyond macroeconomic data, the focus will clearly remain on US political and trade woes. Progress on a US-China trade deal which sees reduced tariffs should help the US Dollar recover some ground, although fears about an economic setback and an on-hold Fed should limit the advance. Indeed, recent comments from Fed officials were tilted to the dovish side, yet the odds for steeper rate cuts are still null. The opposite scenario is also valid, with renewed concerns pushing the Greenback back towards multi-year lows.
EUR/USD technical outlook
The EUR/USD pair is little changed on a weekly basis, hovering around the 1.1360 level. A lower low and a lower high maintain the risk skewed to the upside despite the sharp retracement from weekly peaks. A corrective bearish extension is not out of the table given that technical indicators ease from extreme overbought readings, although their downward strength is well-limited. At the same time, the pair develops above all its moving averages, with the 20 Simple Moving Average (SMA) maintaining its bullish slope far below the flat 100 and 200 SMAs.
In the daily chart, technical readings suggest EUR/USD could soon resume its advance. Buyers may have paused, but there are no signs of an upcoming slide, as technical indicators consolidate well above their midlines. At the same time, the 20 SMA keeps advancing below the current level while above the longer ones, acting as dynamic support at around 1.1180.
Near-term sellers stand at around the 1.1400 mark, the immediate resistance area. Once beyond it, the 1.1470 region comes next, ahead of the yearly peak at 1.1573. A clear break below the latter should see EUR/USD extending gains well beyond the 1.1600 mark. Support, on the other hand, comes at around 1.1300, with a break below it opening the door for a corrective slide towards the 1.1160-1.1170 price zone.
GDP FAQs
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency. When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.
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Author
Valeria Bednarik
FXStreet
Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.
