Weekly EUR/USD Forecast: The Dollar Bulls Are Back, So Stop The Downturn

The EUR/USD pair continued to rise during the first half of the week, but spectacularly failed at parity, ending the week at roughly 0.9750, resulting in a minor weekly loss.

At the beginning of the fourth quarter, optimism ruled supreme as Wall Street reported enormous gains and government bonds continued their weekly gains.

Risk appetite is supporting the EUR/USD exchange rate.

Market participants anticipated that central banks would reduce the pace of quantitative tightening sooner rather than later due to the increasing likelihood of a global recession.

This speculative activity as well as the demand for high-yielding assets were fueled by the Reserve Bank of Australia's lower-than-anticipated 25 basis point increase in the cash rate.

But the positive energy was short-lived. On Wednesday, as the EU suggested additional sanctions against Russia for its invasion of Ukraine in February, the value of the common currency started to decline.

Following the illegitimate annexation of the regions of Donetsk, Luhansk, Kherson, and Zaporizhzhia, sanctions were put in place that included a price cap on Russian oil as well as limitations on imports and exports to and from the country.

There are issues with the European Union.

Additionally, weak EU statistics rekindled concerns about an economic downturn in the Union, dampening the risk-positive atmosphere. S&P Global downgraded its PMIs for September, pointing to a worsening decline in the business sector.

While retail sales in August fell by 0.3% while German sales fell by 1.3%, wholesale inflation in the EU increased by 43.3% year over year.

The monetary policy gathering of the European Central Bank The common currency was impacted by accounts as well. The memo states that some officials supported a rate increase of 50 basis points, which was higher.

In addition, the median projection for inflation over the next three years stayed at 3%. The euro's devaluation may worsen inflationary pressures, but policymakers stressed that taking "decisive" action now will prevent the need to raise interest rates more aggressively in the future.

Officials of the US Federal Reserve are more pessimistic than ever.

As speakers from the US Federal Reserve hit the wires, echoing their well-known hawkish tone, the market's mood worsened even more.

Neel Kashkari, president of the Minneapolis Fed, said that there is still work to be done on the issue of inflation and that, despite the risk of overshooting, there is essentially no evidence that inflation has peaked.

Inflation is their main concern, according to Charles L. Evans of the Federal Reserve Bank of Chicago and Loretta Mester of the Federal Reserve Bank of Cleveland.

Governor Christopher Waller concluded by saying that he does not see any reason to slow the Fed's tightening of policy. American data, meanwhile, have raised hopes that the Federal Reserve will stick to its aggressive monetary tightening course.

The country added 265K new positions in September, which was higher than anticipated but less than the previous month, according to the September Nonfarm Payrolls data.

Unemployment unexpectedly decreased to 3.5%, but labor force participation decreased to 62.3% from 62.4% in August, which was less than expected. The news came after a string of gloomy US employment statistics.

On Tuesday, market participants learned that there were significantly fewer job openings in August, while there were still more than 1.5 million layoffs and discharges.

In addition, US-based businesses reported 29,989 layoffs in September, up 46.4% from August and 67.7% from a year earlier, according to the Challenger Job Cuts report released on Thursday.

Finally, unexpectedly rising to 219K for the week ending September 30, initial claims for unemployment benefits exceeded expectations of 200K. Despite contradictory data, the job market seems resilient enough to withstand rate increases. Inflation is the key factor.

There will be fewer but more exciting events the following week. The government will release the September Consumer Price Index on Thursday, and the US Federal Reserve will release the minutes of its most recent meeting on Wednesday.

This year, annual inflation is predicted to increase by 8.1%, which is a slight increase from last year's 8.3%. The predicted core reading is 6.5%. Even if the CPI decreased in August, the market's expectations for the Fed's actions are unlikely to be significantly affected.

The September Harmonized Consumer Price Index for Germany, which is expected to stay at 10.9%, will be released. On Friday, the focus will be on US September retail sales.

Technical Outlook for EUR/USD

The EUR/USD pair briefly traded above the 38.2% Fibonacci retracement of the 1.0197/0.0535 drop at 0.9790, but it ended the week below that level, indicating that the corrective rise may have come to an end.

The pair may retest and possibly break below the lower end of the range in the coming days.

The pair also failed just before the daily falling trend line from the year high at 1.1494, as seen on the weekly chart, suggesting that the bearish trend will likely continue in the near term.

The 20 SMA continues to be significantly below the longer trend lines and far above them. Technical indicators are still displaying a lack of directional strength at oversold levels in the meantime.

Every day, the risk is skewed to the downside. The pair is trading southward-pointing moving averages below all of them. Technical indicators, meanwhile, continue to move downward after failing to surpass their midpoints.

The 23.6% retracement of the aforementioned daily decline, which is located around 0.9690, offers immediate support. The next level to watch is 0.9600, which comes before the multi-year low of 0.9535.

The most likely parity for sellers to wait for is between 0.9870 and 0.9945. Even if the pair moves back above the latter, falling must be avoided by clearing the trend line at roughly 1.0050.

Euro-dollar sentiment index

The EUR/USD is expected to continue to experience selling pressure over the coming weeks, according to the FXStreet Forecast Poll. All time frames under consideration are dominated by bears. The pair is anticipated to hold steady between now and the end of the year in the 0.97 region.

The Overview chart portrays the EUR in a depressing manner. The three moving averages are still falling, repeating their declines, and reaching new yearly lows.

More significantly, the quarterly and monthly perspectives show that an increasing number of market participants are now projecting lower lows for the year below 0.9500, with likely falls below 0.9000.