EUR/USD Forecast: Forex Friday - July 19, 2024

Our EUR/USD forecast remains bullish but in light of the dollar recovery and the mild risk-off sentiment, we wouldn’t rule out some further short-term weakness after rates fell back below the 1.09 handle following the ECB’s rate decision. The week ahead promises to be an important one for the FX markets, with the release of global PMIs, US GDP and the Fed’s favourite inflation measure.

ECB Rate Decision and Its Impact on EUR/USD

Following the European Central Bank (ECB) rate decision on Thursday, the EUR/USD pair fell and has since remained under mild pressure. The ECB’s decision to keep rates unchanged was anticipated, as was its commitment to making policy decisions based on data at each meeting without committing to a specific policy path. By not opposing market expectations of another rate cut in September, the ECB signalled a likely cut when it releases updated macroeconomic forecasts. The path of policy easing after the September meeting remains uncertain and is expected to be gradual, depending on inflation trends.

Eurozone Economic Data and Its Influence on EUR/USD

The latest economic releases indicate that the eurozone's recovery is weakening. The industrial sector continues to drag on growth, and sentiment indicators suggest that the strong improvement seen at the start of the year is fading. This will keep the European and global PMIs in sharp focus next Wednesday, before attention shifts to U.S. data and its impact on the dollar in the latter part of the week.

Key Economic Events to Watch

Global PMIs - Wednesday, July 24

The weakness in European manufacturing sector PMIs over the past two years has been a significant concern, with little growth seen in the industry. This trend is unlikely to change, but any improvements will be welcomed by the markets. Additionally, services sector PMIs, particularly the prices component, will be crucial as they can be a leading indicator of inflation. Persistent inflation in services has made central banks hesitant to cut rates.

Advance US GDP - Thursday, July 24

Key data to watch on Thursday includes the advance estimate of second-quarter GDP growth and the June core personal consumption expenditure (PCE) deflator. First-quarter growth was a modest 1.4% with consumer spending at 1.5%. Many analysts expect stronger results this time, around 1.5% to 2.5%, due to better consumer spending, rising inventories, and stronger investments. However, challenges remain, and weaker growth is likely in the second half of 2024, which could encourage the Federal Reserve to cut rates from September.

Core PCE - Friday, July 26

Recent comments from several Federal Reserve officials, a cooling jobs market, and falling CPI all suggest the central bank is getting closer to cutting rates in September. Policymakers have not yet declared that the Fed has achieved price stability but are very close. Their preferred inflation measure, the core PCE price index, could give them that confidence on Friday. However, if the data is not encouraging, uncertainty will persist.

EUR/USD Forecast: Technical Analysis

Source: TradingView.com

The EUR/USD holding above the 21- and 200-day moving averages indicates a bullish trend. Despite recent price action suggesting otherwise, the small pullback in the last couple of days follows a strong rally, which should not be ignored. This pullback is likely a retracement against the underlying bullish trend. Look for bullish setups near support for trade ideas. A key area to watch is between 1.0800-1.0830, where prior support and resistance meet the moving averages. On the upside, short-term resistance is around 1.0900, followed by 1.0945, and potentially 1.1000 if the pair climbs above this week’s high.

By keeping an eye on these key economic indicators and understanding the technical trends, traders can better navigate the EUR/USD market and make informed decisions based on the latest EUR/USD forecast.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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