Home Forex Market Analysis EUR/USD Forecast: A Major Pullback Can’t Be Ruled Out

EUR/USD Forecast: A Major Pullback Can’t Be Ruled Out

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EUR/USD Forecast: A Major Pullback Can’t Be Ruled Out

The EURUSD pulled back on Tuesday after the mixed economic data from the Eurozone and the United States. The pair declined to a low of 1.1805, which was substantially lower than this week’s high of 1.1845. 

US consumer confidence slipping

The EURUSD pulled back after the US published the latest consumer confidence data on Tuesday. According to the Conference Board, consumer confidence declined from 125 in July to 113 in August. This drop was driven by the ongoing surge in Covid cases in the US and the rise of breakthrough cases. 

In the past few days, the US has been reporting more than 80,000 new cases every day, meaning that the pandemic is still a major challenge to the economy. As a result, many sectors of the economy are still hurting. For example, recently, airline companies like Southwest and United have reported slow growth and more cancellations. This, in turn, has affected other affiliated sectors like hotels and restaurants.

Still, the Conference Board data was better than the one from Michigan University. The data showed that consumer confidence declined to the lowest level even before the pandemic started. 

Consumer confidence is an important number for the American economy. Besides, consumer spending is the biggest constituent of the economy. It is substantially bigger than business capital expenditure and government spending. Therefore, a low number means that consumers will likely spend less amount of money, which will have an impact on the economy.

US labor market data next

The next key catalysts for the EURUSD will be the latest American labor market numbers. On Wednesday, Automatic data Processor (ADP) will publish its estimate of private payrolls numbers. The data is expected to show that the economy added more than 600k jobs in August. Still, the impact of the ADP figure to the pair will be relatively muted because it tends to have a big deviation from the official numbers.

On Thursday, the Labor Department will publish the latest initial and continuing jobless numbers. After recording a modest weakness last week, analysts expect that the situation improved slightly. Precisely, data compiled by Investing.com shows that they expect the initial jobless claims fell to 343k last week.

Finally, on Friday, the US will deliver the latest non-farm payrolls data. These numbers are expected to show that the labor market added more than 700k jobs in August. Other key numbers from the US will be on trade and manufacturing PMI.

Meanwhile, the EURUSD is also reacting to the relatively strong inflation data from the Eurozone. On Tuesday, preliminary data by Eurostat revealed that the bloc’s inflation rose to 3.0% last month. This was substantially higher than the ECB target of 2.0%. 

Therefore, with the Fed signaling that tapering is on the way, there is a possibility that the ECB will also turn cautiously hawkish. 

EURUSD analysis

The daily chart shows that the EURUSD pair declined to a low of 1.1700 last month. This was an exceptional level since it was along with the lowest level in April. The pair has pulled back and is trading at 1.1806. It is still slightly below the 25-day and 50-day exponential moving averages (EMA)

The Average Directional Index (ADX) has retreated, signaling that this upward trend is not all that strong. Therefore, the pair will likely pullback in the near term and move below the key support at 1.1700. If this happens, the next key support level to watch will be 1.1400.

The EURUSD daily chart with ADX reading 18.78 and the price above the 25-day EMA

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