The Euro enjoyed a stellar week of performance against the US Dollar as EURUSD rallied from 1.01700 to post a weekly high of 1.03699 before pulling back to trade sub-1.03.The rally came courtesy of a weaker greenback on the back of softer US CPI numbers that saw investors adjust rate hike expectations down from 75 to 50 basis points for the Fed’s September meeting. 

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Market sentiment was soon tempered though, asFederal Reserve members were quick to stress that price pressure remains intense, necessitating the need for further rate hikes. Minneapolis Fed President Neel Kashkari said he wants the Fed’s benchmark interest rate at 3.9% by the end of this year and at 4.4% by the end of 2023. Chicago counterpart Charles Evans stated that the Fed would be increasing rates for the rest of this year and into 2023 whileFed Member Mary Daly yesterday confirmed that she is not ruling out 75 basis points in September either.

Europe meanwhile continues to feel the effects of the heatwave across the continent as its rivers continue to evaporate. The Rhine River, a pillar of the German, Dutch and Swiss economies for centuries is set to become virtually impassable at a key waypoint later this week, stymieing vast flows of diesel and coal. The Rhine, whose nautical bottleneck at Kaub is expected to dip below the mark of 40 centimeters early Friday and keep falling over the weekend. While this is still higher than the record low of 27 centimeters seen in October 2018, many large ships could struggle to safely pass the river at that spot adding further worries to an already reeling Eurozone. Even with a surprise in the Eurozone industrial production numbers, there is not much reason for optimism in the weeks and months ahead.

Eurozone Economic Calendar For The Week Ahead

Next week the Eurozone economic calendar is busy. Over the week, there are no fewer than five ‘high’ rated data releases, whilst we also have eight ‘medium’ rated data releases. A week that promises a lot in terms of volatility.

Here are the high ‘rated’ events for the week ahead on the Eurozone economic calendar:

• On Tuesday, August 16,we have the ZEW Economic Sentiment index number due at 11h00 GMT.
• On Wednesday, August 17, the preliminary GDP Growth Rate QoQ 2nd (Q2) is due at 11h00 GMT.
• On Thursday, August 18, the final Core Inflation Rate numbers are due at 11h00 GMT.

EURUSD Daily Chart, August 12, 2022

Source: TradingView, Prepared by Zain Vawda

EURUSD Outlook And Final Thoughts

For FX markets, 2022 has been the year of watching terms of trade developments (the price of exports over imports). These have moved very negatively for the eurozone this year and delivered a negative income shock. This week's move in gas prices has sent eurozone terms of trade towards the worst levels of the year. On the US front, there is a lot of data to go between now and the Fed’s September meeting including the annual Fed Jackson Hole symposium at the end of this month. In terms of imminent data, the highlights for this week ahead will be industrial production and retail sales, both of which should point to a rebound in third-quarter economic activity which should see the dollar receive a further boost.

This week’s rally higher for EURUSD doesn’t convince and I remain bullish on the dollar for now and see price ranging between the 1.0180 and the 1.0350-1.0400 range in the short-term. DXY should be able to edge a little higher as we head into the week with a sustained break above 105.50 going a long way to stabilizing it after the heavy losses suffered on Wednesday's US CPI release.

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