The EUR/USD Rate in the Week Ahead: Down Move Likely to Extend

© Grecaud Paul, Adobe Stock

- Strong move lower last week set to continue

- Pair has broken below 50-day moving average

- Both USD and EUR eye economic data releases

The Euro-to-Dollar rate is expected to begin trading around 1.1299 Sunday after falling -0.2% during the previous week, although the exchange rate is likely to experience further losses over the coming days after economic data and price action on Friday undermined support for the single currency.

The Euro weakened after data appeared to show the ongoing recession in the European manufacturing sector deepening during March, although the Dollar was volatile in response to geopolitical developments and after the Federal Reserve (Fed) hinted strongly that it won't raise U.S. interest rates this year.

From a technical perspective, the outlook for the pair is bearish. EUR/USD is trading within a falling trend channel and looks vulnerable to further losses in the short-term.

Above: EUR/USD rate shown at daily intervals.

The pair has broken below the 50-day moving average (MA) on a closing basis, which is a bearish sign and a bearish ‘shooting star’ Japanese candlestick pattern has now formed on the weekly chart in the previous week.

This is a bearish sign that means the move lower is likely to continue. A break below the 1.1250 level would confirm a continuation down to 1.1180.

Above: EUR/USD rate shown at weekly intervals.

The 4-hr chart is more ambiguous. The pair has fallen in a three-wave zig-zag over the last few days and, as per above, a break below the 1.1250 level would extend the downtrend down to a target at 1.1180. However, the S1 monthly pivot point located at 1.1240 may be an impediment to bears. 

Above: EUR/USD rate shown at 4-hour intervals.

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The Euro: What to Watch

The main release for the Euro in the week ahead is the Ifo business sentiment survey from Germany, which is out at 09:00 GMT on Monday.

The Ifo, like the ZEW, is often seen as a good leading indicator for the economy. The Ifo can move the Euro if it surprises to the up or downside.

The headline index is seen rising from 98.5 to 98.7 in March, based on an anticipated improvement in the "future expectations' subindex, which is expected to offset another decline in the 'current conditions' barometer. 

“Bearing in mind the disappointment in Germany’s manufacturing PMI for the same month, investors will pay a lot of attention to the Ifo prints, in order to either confirm or cast doubt on the narrative that Europe’s growth engine slowed further in Q1,” says Marios Hadjikyriacos, an analyst at XM.com.

The other important release for the single currency is the flash estimate of German inflation. This is always out just days before the Eurozone-wide print and is quite a good early indicator for the broader gauge.

Consensus is for German CPI to remain at 1.5%, based on a 0.6% month-on-month increase in March, when it is released at 09:00 on Thursday, March 20. Markets are looking for EU harmonised CPI to rise by a stronger 1.6% in March, up from 1.5% previously.

“The nation’s EU-harmonized CPI rate is projected to tick down to 1.6% in yearly terms, from 1.7% in February. While this seems discouraging, the pullback could be owed mainly to movements in energy prices, so investors may prefer to wait for the core CPI print for the entire euro area – due on April 1 – before drawing any conclusions about the outlook for price pressures,” 

A higher-than-expected inflation reading could be positive for the Euro and vice versa for a lower reading.

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The U.S. Dollar: What to Watch

The main release for the Dollar in the week ahead is the final reading of fourth-quarter GDP growth, which is due out on Thursday at 12:30 and is expected to be revised down from 2.6% to 2.5% on annualised basis.

This will be important because currency markets are focused on growth differentials between the U.S. and other major economies at the moment. Investors and analysts are watching closely for signs of an accelerated slowdown in the U.S. 

Consensus is firmly in favour of a weaker Dollar before year-end but in order for that to happen the U.S. economy will first need to slow meaningfully, or the likes of Europe and China will need to experience a notable economic rebound.

Personal income and spending data for February will also garner the market's attention at 12:30 on Friday. Personal income is seen rising  0.3% in February, up from -0.1% in the previous month.

Personal spending in February, meanwhile, is forecast to also rise by 0.3%. That's up from -0.5% previously. If those gains materialise they may provide support for the Dollar as they will evidence continued economic growth.

The housing market has been especially weak in the U.S. recently, which is something that has been raising alarm bells smong analysts as the market is a bellwether of the economy. 

New home sales are projected by economists to have risen 1.3% in February from a -6.9% decline in January when they are released at 14:00 on Friday.

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