EUR/USD Weekly Forecast July 31-August 4
Frankfurt (July 30) Trading in EUR/USD was volatile in the past week but the pair closed near highs and posted a third consecutive week of gains, once again making a notable technical break.
The Federal Reserve held its monetary policy meeting in the past week and the statement released on Wednesday had only minor changes to inflation rhetoric and a slightly more optimistic reference to the labor markets. The Fed signaled that balance sheet normalization will start ‘soon’ which was expected as Fed Chair Yellen said something similar at her testimony to Congress.
The lack of a hawkish element to the meeting minutes triggered a continuation of the bullish trend in EUR/USD, driving the pair above the 2015 high of 1.1714. The rally was met with sellers at a horizontal level that is respected on a monthly chart at 1.1767. While the pair sold off sharply on Thursday after testing the 1.1767 resistance, it recovered on Friday to close the week near the level. The weekly close marks the highest since the second week of January 2015.
Similar to EUR/USD, the US Dollar index (DXY) posted a third consecutive week of losses. However, a slight divergence is seen as the index has held above lows posted in 2015 and 2016. On a daily chart, a horizontal level at 92.62 marks the 2015 low that acted as support in 2016. The level will be important in the upcoming week and if it proves to hold buyers, EUR/USD will struggle to extend gains. DXY closed the week at 93.26.
In the week ahead, the Bureau of Labor Statistics will release US employment data. Analysts are expecting average hourly earnings to tick up to 0.3% and the unemployment rate to tick down to 4.3% in July from 4.4%. The headline increase is expected to show an additional 183,000 jobs.
It is unlikely the jobs report will have a significant impact on US monetary policy unless there is a significant deviation from expectations. The average hourly earnings data will be important in gauging inflation expectations. In the last reading, the figure fell short of expectations. In the last three readings, there was a downwards revision for the prior month’s reading.
Other releases that stand to have an impact include US PMI figures on Tuesday and Thursday, the core PCE price index on Tuesday and flash CPI released by Eurostat on Monday.
The latest COT report recorded a small decline in the euro net long among non-commercials. The position declined from 91,321 to 90,842 contracts. The position size remains near a six-year high.
EUR/USD ended last week near resistance at 1.1767. The level marks support that was respected in 2005, as seen on a monthly chart. The next upside hurdle will be the 200-period weekly moving average, currently residing at 1.1795. In the event of a break above the moving average, further resistance is seen at 1.1876 which marks the 2010 low.
Support for the pair is seen at 1.1714 reflecting the 2015 low followed by a horizontal level at 1.1674 which falls near the bottom of a rising trend channel that has contained price action since July 12th.
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