- The Fed’s rate hike took the dollar to new highs weighing on the euro.
- Rising energy costs are shrinking the European economy.
- Europe faces a recession as the Ukraine war escalates.
The EUR/USD weekly forecast is bearish as recession worries increase amid a gas crisis in Europe. The pair has seen a massive fall in the week.
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Ups and downs of EUR/USD
The US Federal Reserve raised rates by 75 bps to 3.24% in response to higher-than-anticipated core inflation in August. Powell’s hawkish comments after the hike pushed the EUR/USD lower.
Meanwhile, the rising hostilities between the EU and Russia caused another setback for the pair. As Moscow lost momentum in the invaded territory, President Vladimir Putin ordered a mobilization to bolster troops in Ukraine and called on 300,000 civilian reservists.
As winter draws near, the war’s progress exacerbates the energy situation in Europe, increasing the likelihood of a longer and deeper recession.
“Given the downward risks and the high degree of uncertainty, everything is pushing towards a contraction in economic activity in the eurozone over the coming quarters,” said economists at ODDO BHF.
S&P Global announced the early projections for its September PMIs on Friday. According to European indexes, the economy shrank even more due to rising energy costs.
Next week’s key events for EUR/USD
Next Tuesday, the US will release the final reading of the second quarter’s gross domestic product, which is anticipated to be confirmed at -0.6% YoY growth.
On Friday, the EU will release figures on inflation that will cause a lot of volatility as it will impact the ECB’s next rate hike. Core inflation is expected to rise from 4.3% to 4.7%.
EUR/USD weekly technical forecast: A strong plunge with no bottom in sight.
The EUR/USD pair’s slide began this week after taking a break, and there are currently no technical indications that it will soon reach a bottom. The daily chart shows the price trading far below the 22-SMA, and the RSI oversold. The pair is now clearly trading below 1.0000 and has closed at 0.9709. If there is any bullish action at all, it will be a pullback after such a strong move.
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The price might fall further to 0.9604 before returning to retest resistance at 0.9900. Buyers might return because the RSI is oversold. However, the downtrend will likely continue next week.
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