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  • The Fed is ready to face a softening labor market.
  • The Fed will continue with its fight against inflation.
  • Investors are awaiting the nonfarm payrolls to gauge the US economy’s health.

The EUR/USD weekly forecast is bearish as markets will likely price in a 75bps rate hike from the Fed in September after Powell’s speech.

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Ups and downs of EUR/USD

The pair closed lower on Monday but had a choppy rest of the week. Trading throughout the past week was cautious as investors awaited the Jackson Hole meeting. There were also a lot of economic news releases from Europe and the US that failed to move the pair beyond its range. On Tuesday, German PMI went up in August while new home sales in the United States for July dropped. These releases saw the pair closing slightly higher on Tuesday.

On Wednesday, US core durable goods data was positive, and the pair closed slightly lower. Thursday saw the release of German GDP and business climate data, all positive, and the pair closed slightly higher. Then came Friday, the day everyone was waiting for eagerly. The pair fell after Powell delivered a hawkish speech at Jackson Hole.

“Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will likely be some softening of labor market conditions,” Powell said.

“It was hawkish as expected. Powell’s message is clear: the Fed is far from done in its fight against inflation,” said Antoine Bouvet, senior rates strategist at ING in London.

Next week’s key events for EUR/USD

EUR/USD weekly forecast

On September 2, the monthly jobs report for the United States will be released. This report will test the claim that the world’s largest economy is in good shape and show whether the Federal Reserve can create a “soft landing” while raising interest rates to combat inflation that has been running at four-decade highs.

According to what the flash August consumer price index on Wednesday is likely to reveal, inflation in the euro area is still uncomfortably high.

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EUR/USD weekly technical forecast: Trading below parity

EUR/USD weekly forecast

The daily chart shows the price consolidating below parity, as seen in the series of small-bodied candles. This consolidation comes in a downtrend as the price trades below the 22-SMA. The RSI also favors bearish momentum as it trades below 50.

The price will likely fall in the coming week toward the next psychological level at 0.98013.

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