EUR/USD Weekly Forecast: Is there hope for Europe and the EUR?

• Central banks' aggressiveness and escalating chaos in Eastern Europe backed the greenback.
• US inflation and the European Central Bank take center stage next week.
• EUR/USD is technically bearish and could extend its decline towards the 1.0600 region.

The shared currency had a bad week, falling against its American rival to 1.0835 and finishing it just a handful of pips away. There were two main factors pushing investors into the greenback: the idea that the Eastern European crisis would take months to resolve if it finally gets resolved and the hawkishness of central bankers from around the world.

Central banks react to Russian-triggered chaos

More aggressive monetary policies were already on the radar amid persistent inflationary pressures, although policymakers were “patient” about it, hoping it would resolve itself.  Bottlenecks and supply chain issues, a consequence of the early lockdowns due to the coronavirus pandemic, were the main reason for escalating prices.

The Russian invasion of Ukraine exacerbated supply-chain issues and sent commodity prices to multi-year highs, which fueled further already high inflation. Meanwhile, Western nations keep piling on the sanctions on Moscow, adding to global chaos. Europe has a high energy dependence on Russia and is juggling to replace it without condemning the Union to fuel shortages.

The European Central Bank and the US Federal Reserve unveiled the minutes of their latest meetings. The accounts from the ECB showed that a large number of members believe that the current high level of inflation and its persistence needs immediate further steps toward monetary policy normalization, adding that “the three forward guidance conditions for an upward adjustment of the key ECB interest rates had either already been met or were very close to being met.” As the bank plans to end its bond-buying program early in the third quarter, there is a good chance that a rate hike will come before the year-end.

As for the Fed, FOMC Minutes were far more aggressive than anticipated. US policymakers “generally agreed” on reducing the balance sheet by $95 billion a month, likely beginning in May.  A maximum of $60 billion in Treasuries and $35 billion in mortgage-backed securities would be allowed to roll off per month. At the same time, the document hinted at upcoming 50 bps rate hikes, instead of the average 25 bps as hiked in March.

US inflation and ECB on the docket

The macroeconomic calendar reflected market concerns as EU Sentix Investor Confidence plunged to -18 in April. The Producer Price Index in the Union soared to 31.4% YoY in February, while Retail Sales were up a modest 0.3% in the same month.

Former Markit, now S&P Global, published the final readings of its March Services PMIs, which were upwardly revised from their flash estimates, while the official US ISM Services PMI for the same month beat expectations by printing 58.3.

US Factory Orders were down 0.5% MoM in February, while Initial Jobless Claims for the week ended April 1 improved to 166K.

Germany will report March inflation next week, expected to be confirmed at 7.3% YoY. The country will also release the April ZEW Survey on Economic Sentiment, foreseen falling further amid geopolitical tensions.

The European Central Bank will announce its decision on monetary policy on Thursday, April 14. No action is expected this time, but market participants will be looking for confirmation of upcoming rate hikes starting in September.

The US will publish the March Consumer Price Index, expected to reach 8.3% YoY. The core reading is foreseen at 6.6%, up from the previous 6.4%. The country will also release March Retail Sales and the preliminary estimate of the April Michigan Consumer Sentiment Index.

EUR/USD technical outlook

The EUR/USD pair has seen a sharp decline in the last few days and trades near the year low at 1.0805. A break below the level should open the doors for a bearish continuation towards 1.0635, the low set in March 2020.

The weekly chart shows that the pair is developing below all of its moving averages, with the 20 SMA converging with the 61.8% retracement of the 2022 slump, at around 1.1230. At the same time, technical indicators turned sharply lower within negative levels, maintaining their bearish slopes near oversold readings.

Technical readings in the daily chart show that bears hold the grip. Moving averages are heading south far above the current level, while technical indicators remain within negative levels, without signs of bearish exhaustion.

The pair has closed in the red for seven days in a row, which increases the odds of a bullish correction. Still, it will likely be short-lived. Above the 1.0900, the pair can stretch up to 1.0965, a Fibonacci resistance level, before meeting substantial selling interest. If somehow EUR/USD surpasses the latter, the advance could continue towards the 1.1140/60 price zone. A slide below 1.0800 will initially target the 1.0720 region, ahead of the aforementioned 1.0635. 

EUR/USD sentiment poll

According to the FXStreet Forecast Poll, the EUR/USD pair will extend its decline next week, as 45% of the polled experts are betting on lower levels. The number of those looking to sell decreases sharply in the monthly view, down to just 11%. Bulls, on the other hand, surge to 59%, with the pair seen on average at around 1.0950. In the quarterly perspective, the pair is seen at 1.0865, with an even distribution of sentiment.

The Overview chart, on the other hand, hints at persistent bearish strength. The three moving averages under study head firmly lower, while the chance of a move beyond 1.1100 fades. On the contrary, the number of those seeing the pair below 1.0800 has increased in the monthly and quarterly views.