EUR/USD Weekly Forecast – Germany and the US Jobs Report in Focus

Highlights:

• The EUR/USD steadied in the final week of June, with softer US inflation providing support.
• However, it will be another choppy week ahead with the German economy and the US jobs report in focus.
• Central bank commentary will also need consideration as investors look beyond the summer.

It’s a busy week for the EUR/USD, with the German economy, private sector PMIs, and the US Jobs Report in focus.

Private sector PMIs for Italy and Spain and finalized PMIs for France, Germany, and the Eurozone will be in focus on Monday and Wednesday.

Barring revisions to the French and German PMIs, Italy and the Eurozone PMIs will likely garner more interest. A deeper contraction across the manufacturing sector and slower service sector activity could test the ECB’s commitment to bring inflation to target.

Beyond the headline PMIs, investors should consider the inflation, new orders, and employment sub-components.

While the PMIs will influence, economic indicators from Germany will move the dial. Trade (Tues), factory orders (Thurs), and industrial production (Fri) numbers will give investors a snapshot of the German economy midway through Q2.

German economic indicators have raised the prospects of a euro area-wide economic recession. This week, weak economic indicators could also force the ECB to reconsider its policy intentions before the summer break. Investors should consider the ECB calendar.

From China, Caixin private sector PMIs will also need consideration. A contraction across the manufacturing sector would spook the markets but could fuel speculation of a Beijing stimulus package.

EUR/USD Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The EUR/USD sat above the 50-day EMA, currently at $1.09034. The 50-day EMA pulled away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above the 50-day EMA ($1.09034) would support a breakout from R1 ($1.0979) to give the bulls a run at R2 ($1.1049) and $1.1100.

However, a fall through the 50-day ($1.09034) would bring the 100-day ($1.08812) and 200-day ($1.08614) EMAs and S1 ($1.0838) into play. A fall through the 50-day EMA would send a bearish signal.

Resistance and Support Levels

The US Week Ahead

It is a busy week ahead for the greenback.

ISM manufacturing PMI and sub-component numbers kickstart the week. While a more marked contraction would be bearish, investors will likely remain focused on the labor market and new order sub-components.

On Thursday, the focus will shift to labor market numbers and the services sector. The all-important ISM Non-Manufacturing PMI and sub-components will garner plenty of interest. Slower service sector activity, softer input and output cost pressures, and weaker new orders could reignite fears of a Fed-fueled economic recession.

However, JOLT’s job openings and jobless claims will also need consideration.

On Friday, the US Jobs Report will be the main report of the week. After hotter-than-expected inflation numbers last Friday, a solid US Jobs Report would cement a July rate hike and raise the bets on a September move.

Last week, Fed Chair Powell warned the markets of consecutive rate hikes sitting on the table ahead of the inflation figures.

With inflation and the Jobs Report as the focal points, the FOMC meeting minutes will unlikely move the dial on Wednesday. Since the FOMC Press Conference, Fed Chair Powell delivered two days of testimony on Capitol Hill and two speeches at the ECB Central Bank Forum. Powell stuck to the script, dashing hopes of a post-July pause.

However, investors should monitor Fed chatter throughout the week.