EUR/USD outlook: PMIs, US GDP and Core PCE to set FX tone

In this week's EUR/USD outlook, we see important macro events in the days ahead which could set the short-term tone for this and other major FX pairs. But first, we will begin by looking at the chart to remind ourselves of the trend.

Technical Analysis: What's Next for EUR/USD?

At the time of writing late in the day on Friday, we saw the EUR/USD holding its ground above the 21- and 200-day moving averages, suggesting the bullish trend was still intact despite the weakness observed at the of the week. The recent small pullback after a nice rally shouldn't be overlooked; it's likely just a retracement against the underlying bullish momentum. Look for bullish setups near support levels for optimal trade ideas, is the way we would approach this pair this coming week. Keep an eye on the key area between 1.0800-1.0830, where prior support and resistance meet the moving averages shown on the chart. Short-term resistance is around 1.0900, followed by 1.0945, and potentially 1.1000 if we climb above the recent high.

Source: TradingView.com

ECB in data-dependency mode as Eurozone recovery loses steam

After the ECB's rate decision on Thursday, the EUR/USD fell and has stayed under mild pressure. The ECB's move to keep rates unchanged was expected, as was its commitment to a data-dependent approach for each meeting without committing to a specific policy path. By not opposing market expectations of another rate cut in September, the ECB signalled a likely cut when it releases updated macroeconomic forecasts in September. The path of easing after September remains uncertain and is expected to be gradual, depending on inflation trends.

Recent economic releases show the eurozone's recovery is weakening. The industrial sector continues to drag on growth, and sentiment indicators suggest that the strong momentum from earlier in the year is fading. This will put European and global PMIs in sharp focus on Wednesday, before attention shifts to US data and its impact on the dollar later in the week.

So, the EUR/USD outlook this week will be determined by upcoming data releases.

Key Economic Events to Watch This Week

Global PMIs - Wednesday

European manufacturing sector PMIs have been weak over the past two years, with little growth in the industry. While this trend is unlikely to change soon, any improvements will be welcomed by the markets. Services sector PMIs, particularly the prices component, will also be crucial as they can be a leading indicator of inflation. Persistent inflation in services has made central banks hesitant to cut rates. These data points are essential for the EUR/USD outlook this week.

Advance US GDP estimate - Thursday

On Thursday, keep an eye on the advance estimate of second-quarter GDP growth and the June core personal consumption expenditure (PCE) deflator, as the focus turns to the US data and the dollar. First-quarter growth was a modest 1.4%. Analysts expect stronger results this time, around 1.5% to 2.5%, due to better consumer spending, rising inventories, and stronger investments. However, challenges remain, and weaker growth is likely in the second half of 2024, which could push the Federal Reserve to cut rates from September. This will heavily influence the EUR/USD outlook this week, especially if the data deviates significantly from expectations.

Core PCE Price Index - Friday

Recent comments from several Federal Reserve officials, a cooling jobs market, and falling CPI all suggest the central bank is getting closer to cutting rates in September. Policymakers are close to declaring that the Fed has achieved price stability. Their preferred inflation measure, the core PCE price index, could give them that confidence on Friday. However, if the data is not encouraging, uncertainty will persist. This is a crucial factor in this week's EUR/USD outlook, along with the aforementioned GDP estimate and PMIs from the Eurozone

Navigating the EUR/USD Market This Week

In this week's EUR/USD outlook, staying on top of key economic indicators and understanding technical trends is crucial for traders. Despite recent short-term weaknesses, the overall outlook remains bullish, especially if the pair continues to hold above critical support in the $1.08 area. Stay informed and be ready to adapt your strategies based on the latest data and market movements.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R