EUR/USD, EUR/GBP PRICE FORECAST:

WEEKLY FORECAST: US Dollar Forecast: Powell Adopts Hawkish Tone but DXY Eyes Potential Retracement

The Euro appears to be eyeing a temporary reprieve and recovery on Monday following a trying time last week. EURUSD put in its 6th consecutive week of losses while EURGBP actually ended the week strong following an early week sell-off and fresh YTD lows.

EURO AREA DATA

European data releases of late have been worrisome to say the least with last week’s PMI data really stoking concern around a recession as rate hikes begin to bite the economy. The PMI data showed a slowdown across a multitude of sectors while input costs showed signs of accelerating once more. The acceleration of price pressures leaves the Euro Area vulnerable to further rate hikes which would most certainly tip the area into a recession. These price pressure concerns were echoed by both ECB President Christine Lagarde at her Jackson Hole address as well as ECB policymaker Martin Kazaks who stated that a pause now may have longer lasting implications down the road. As things stand the September meeting is delicately poised with the probability of another 25bps hike hovering around 50/50.

RISK EVENTS AHEAD: US, UK AND EURO AREA

From a risk event perspective there isn’t a lot on the horizon for the Euro Area, US and the UK this week and each release could have a knock-on effect on EURUSD and EURGBP. The Euro Area will release its latest inflation flash estimates this week which could be a key guide to the European Central Banks (ECB) decision at the September meeting. Any sign that inflation may be making a move higher again or signs that the gradual decline may be losing steam could solidify the ECB decision of one more rate hike now rather than wait any longer. This in theory should provide the Euro with some strength which may come under pressure depending on the data releases of its counterparts.

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On the US end we have lot as mentioned but the key releases are likely to be the NFP jobs data as well US Core PCE data which is the Feds preferred gauge of inflation. The robustness of the US economy has been attributed to steady demand with average hourly earnings playing a large part. An uptick in PCE could provide the US Dollar some support as we may some hawkish repricing of the Fed Funds peak rate should such a print materialize.

For all market-moving economic releases and events, see the DailyFX Calendar

TECHNICAL OUTLOOK AND FINAL THOUGHTS

Looking at EURUSD from a technical perspective and the attempted bounce today failed to take out the previous four hour swing high as the pair continues to print lower highs and lower lows.

Some intervention from China overnight improved sentiment and saw the US Dollar weaken to allow a EURUSD advance. However, we have seen over the past week a trend of a weaker Dollar in the Asian and early European session followed by a return of US Dollar bulls in the New York session. Something to consider for those looking at a deeper retracement on EURUSD.

Last week the pair put in a triple bottom on the weekly in what could be a sign of more upside to come even though the fundamental at this stage remains in favor of further downside. A continuation of the move to the downside faces immediate support around 1.0756 (100-day MA) before the 1.0700 may be met. Alternatively, a push higher faces immediate reaction around the 1.0840 mark and then the 1.0900 level.

EUR/USD Daily Chart – August 28, 2023

Source: TradingView

EURGBP continued to advance this morning following a surge toward the end of last week from a fresh YTD low. EURGBP is trying to break above the 50-day MA with the larger range between the 0.8500-0.8700 range remains in play since early May.

The weekly candle closed as a hammer candlestick which does hint at a bullish week despite the fundamentals likely pointing toward further GBP strength. Euro Area inflation data out later this week could have a huge say in where EURGBP heads to next.

The Upside will see resistance at around 0.8640 (100-day MA) before the 100-day MA around 0.8710 comes into focus.

EUR/GBP Daily Chart- August 28, 2023

Source: TradingView

IG CLIENT SENTIMENT DATA

IGCSshows retail traders are currently Net-Long on EURGBP, with 62% of traders currently holding LONG positions.

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Written by: Zain Vawda, Market Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda