EUR/USD Weekly Forecast: Aggressive Fed To Keep Euro Below 1.1385

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• In December, European inflation reached a record high, up 5% over the year before.
• The US Federal Reserve has pointed to more aggressive measures to contain inflation.
• Although the EUR/USD pair remains above 1.1300, buyers may soon give up.

The EUR/USD weekly forecast is bullish as the pair shed off losses and ended the week on a positive note, just below the recent swing highs. There were a few surprises in the first week of 2022 for the EUR/USD pair, but it remained largely unchanged. Among the biggest shocks was when the American central bank released minutes of its December meeting, which showed policymakers were considering cutting their bonds.

According to the Fed, if the current improvements in the labor market persist, the conditions for a rate hike are likely to be met relatively soon. Next came the December nonfarm payroll report. The US created 199,000 new jobs in December, half of the number the market expected. On the other hand, the unemployment rate improved and fell to 3.9%. While the numbers were not impressive, market participants still considered them acceptable.

In December, the euro area’s inflation rate grew by 5%, a new record high after the last month at 4.9%. Also, German consumer prices rose 5.3% compared to the forecast of 5.2%. Inflation is pushing the European Central Bank to reconsider its conservative stance.

In the wake of Omicron, an outbreak of the coronavirus variant, the economic slowdown began before the beginning of the year. The current strain of COVID-19 is spreading like wildfire, and while the number of deaths and hospitalizations is still low, it continues to put a strain on the economy.

Key Data/Events for EUR/USD Next Week

Next week will see the January Sentix investor confidence report and November industrial production figures. In addition, the country will report the final consumer price index for December, and retail sales are expected to rise by 0.3%. In addition, a preliminary estimate of the Michigan Consumer Sentiment Index for January will be released.

EUR/USD Weekly Technical Forecast: Bearish Flag Pattern

Since mid-November, the EUR/USD pair has hovered around the 1.1300 level. Although the pair closed the week above 20-day and 50-day SMAs, the price is still below the 1.1385 (recent point of rejection).

Meanwhile, we can clearly see a bearish flag pattern on the chart, showing that recent upside movement is not enough to trigger a bullish reversal. Therefore, further trading opportunities can be found on the flag pattern breakout.