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  • Inflation has been persistently high, and central banks have raised fears of stagflation.
  • US and German CPI data will be published next week.
  • EUR/USD corrective rise is not enough to convince the buyer.

The weekly forecast for the EUR/USD remains bearish after the Fed raised rates and US NFP came up with an upbeat jobs report. The EUR/USD price ended a rather volatile week near 1.0545, close to the yearly low of 1.0470. However, despite some corrections, the pair remains bearish on the whole.

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Inflation continues to spiral out of control, and tightening has become the new normal as central banks have been in the spotlight this week. Australia’s Reserve Bank was the first to raise interest rates by 25 basis points. According to the statement, the economy has shown resilience, and inflation has risen faster and higher than expected.

Central banks in action

This week, among the most anticipated events, was the Federal Reserve’s meeting on Wednesday. A 50-basis point hike was expected in the federal funds rate, and the central bank announced it would begin to shrink its balance sheet on June 1. A cap of $47.5 billion per month would be imposed initially, rising to $95 billion in three months.

Financial markets reacted little following the announcement, which was largely in line with expectations. Jerome Powell’s press conference, however, was a disaster. Instead, investors welcomed Powell’s “less aggressive” stance, among other things. As a result, Wall Street increased along with high-yielding currencies. Immediately following the announcement, the EUR/USD hit a weekly high of 1.0641 before falling to a weekly low of 1.0492 early Thursday morning.

The Bank of England sparked the dollar recovery. The Monetary Policy Committee unanimously approved a 25-basis point increase to 1% of the Bank of England. However, the central bank revised its growth projections for next year. Andrew Bailey added that inflation could top 10% in the coming months and warned that the UK could fall into a recession before the end of the year.

The US economy faces stagflation: slow economic growth coupled with rising inflation, resulting from Bailey’s reality check. The dollar gained strength on Thursday as Wall Street fell.

Furthermore, market participants acknowledged that the Fed may not have been more aggressive than expected, but it is she who applies the most stringent measures. The European Central Bank is expected to discuss a rate hike in July, but the Federal Reserve will likely have removed another 50 basis points by then. Over time, the US currency will continue to benefit from central bank imbalances.

The East European crisis also poses a serious burden on the single currency. There is no wavering in Russia’s determination to dominate Ukraine, which continues to be attacked. While the EU is working on replacing Russian energy sources, it still cannot agree on a full oil embargo, despite announcing the sixth round of sanctions. Hungary and Slovakia have proposed an exception to the oil ban until 2024 by the European Commission. While this threat persists, the Euro has little chance of rising against its US counterpart.

What did the data reveal?

The economy is growing but at a slower pace. For example, the US ISM Manufacturing Purchasing Managers Index was 55.4 in April, down from 57.1 in March. Similarly, the services index reached 54.6, falling short of expectations from the previous reading.

According to the country’s April non-farm payroll report, 428,000 new jobs were created. There was a 3.6% unemployment rate, slightly above the estimate of 3.5%. Additionally, the average hourly wage increased by 5.5%, adding to inflationary pressures and creating serious problems for politicians.

The situation is no better on the other side of the pond. In March, retail sales fell in Germany and the EU, beating market expectations, while the S&P Global Services PMI declined. Moreover, in March, German manufacturing orders fell by 3.1%.

Week ahead for EUR/USD forecast

EUR/USD weekly forecast

Next week will be quiet in top-tier events, with inflation taking center stage. Germany is expected to confirm its April CPI was 7.8% year on year, while the United States reports a decline in its annual CPI to 8.4%. We expect the core consumer price index to be 6.0%, down from 6.5% last month.

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EUR/USD weekly technical forecast: No respite for bulls

EUR/USD weekly forecast

The EUR/USD price shows a ranging behavior on the daily chart. The price is well below the key SMAs. However, the volume shows no clue of bullish reversal or bearish continuation. However, the range breakout can provide some meaningful trading opportunities. The probability of downside breakout is more prominent in the given scenario.

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