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  • The Eurozone is facing a possible energy crisis.
  • The dollar rally is set to continue after the high inflation reading.
  • Investors expect a 25bps rate hike from the ECB.

The weekly EUR/USD forecast is bearish as markets do not expect the ECB to hike rates higher than the consensus. It would take a surprise hike to elicit a bullish move in EUR/USD.

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Ups and Downs of EUR/USD

The EUR/USD has had a week full of activity, with many fundamental events causing movements in the pair. The pair started the week badly when the Nord Stream, the largest pipeline delivering Russian gas to Germany, was closed for maintenance. 

Countries like France have already started shifting to oil in preparation for a possible cutoff.

These developments weighed heavily on the euro.

US inflation also weighed on the pair as it came in higher than investors had expected. Markets expected a 100 basis point rate hike at the next Fed meeting, which saw the dollar rising.

Next week’s key events for EUR/USD

EUR/USD weekly forecast

The European Central Bank is expected to start its rate hike journey with a 25bps, although some investors see a possible 50bps rate hike. This decision will be the focus for EUR/USD investors next week. At the same time, the Eurozone is facing a looming energy crisis that is affecting the region’s vulnerable economies. Even if ECB can tame inflation with rate hikes, the region might go into recession.

Speaking at a political gathering in the Finnish city of Pori, policymaker Olli Rehn said, “The ECB’s interest rate after September depends on whether we see another cold spell in the European economy due to Russia’s war possibly intensifying.”

The market has already priced in the 25bps rate hike, so it would take a surprise rate hike to cause a EUR/USD rally.

EUR/USD weekly technical forecast: Solid support at 1.0000

EUR/USD weekly forecast

The daily chart shows a strong downtrend. The price is trading well below the 22-SMA, showing that bears are in control, and the RSI has touched and come out of the oversold region, favoring bearish momentum.

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We can also see that the price experienced support at 1.00006 and is currently pushing off that level and heading higher. This move might begin a pullback that could retest 1.03575, a critical support and resistance level.

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