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The EUR/USD currency pair started last week with an upbeat tone as hopes of Federal Reserve interest rate cuts rose, pushing the US dollar to its lowest point since March. The pair then reversed and erased some of its weekly gains after the European Central Bank (ECB) decision.

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• The EUR/USD exchange rate ended the week at 1.0882, down by 0.60% from its weekly high.
• The sharp reversal happened after the relatively dovish statement by the ECB and optimistic inflation survey data. This data revealed that Eurozone inflation would remain below 2% in the next two years, raising confidence that the bank had won its biggest battle.

As was widely expected, the ECB left interest rates unchanged at 3.7% and hinted that a rate cut would happen in the next meeting if inflation trends continued. A report on Wednesday confirmed that inflation was easing, with the headline Consumer Price Index (CPI) falling from 2.5% to 2.4% in June and the core CPI remaining at 2.9%.

In several statements, ECB officials from Lithuania, Germany, and France noted that the bank has room for at least two more rate cuts, barring any black swan event. Still, most of them noted that the bank was concerned about the rising wage growth in key countries, which will impact inflation.

With the ECB done, next week will be important because the US will publish the first estimate of Q2’s GDP data and the important personal consumption expenditure (PCE) data. Estimates are that the economy expanded by 2.0% in Q2 after growing by 1.4% in the previous quarter.

Most importantly, economists expect the PCE and core PCE data to come in at 2.4% and 2.5%, respectively, improving from the previous 2.6% reading. Another drop in PCE, the Fed’s favorite inflation data, would raise the possibility that the Fed will cut rates in its September meeting.

EUR/USD: False Breakout or a Mere Pullback?

Therefore, the question is whether the last two trading days' retreat was the start of a deeper reversal or a simple pullback. The daily chart provides hints, as the price has remained above the 50-day Exponential Moving Average (EMA), meaning that bulls are still in control.

Additionally, the pair appeared to be attempting to retest the upper side of the symmetrical triangle pattern. A break and retest pattern is considered a continuation sign, meaning that the pair could resume its bullish trend this coming week.

Most notably, it has also formed an inverse head-and-shoulders chart pattern, which is often a bullish sign.

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The weekly chart provides more hints about what to expect this week. By closing at 1.0882 on Friday, the pair formed a shooting star chart pattern, a popular reversal sign, meaning that the pair could see more downside, at least in the first days of the week.

On the positive side, the EUR/USD pair seems to be in the process of forming a bullish pennant pattern whose triangle part is nearing its confluence zone. In technical analysis, a pennant is often seen as a sign of a bullish continuation.

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EUR/USD Weekly Outlook: Speculative Range is 1.0950 and 1.0800

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Signs of exhaustion among bulls faded after the ECB decision, pushing the EUR/USD pair back to the Woodie pivot point at 1.0870.

The key levels to watch this week will be 1.0950 (last week’s high) and 1.0800, the 50-day EMA. A rebound above the 1.0950 mark would point to more upside and open the possibility to retest the key resistance point at 1.0982, its highest swing in March.

On the flip side, a drop below the Woodie pivot point at 1.0870 would signal a further decline to the psychological point at the 1.0800 level.

Key Economic Data to Watch

There will be several European and US economic data this week. S&P Global will publish the flash manufacturing and services PMI numbers on Wednesday. The US will also release the June existing and new home sales data and durable goods data. While these numbers are important, their impact on the EUR/USD pair will be limited.

The same is true with Thursday’s GDP data. Instead, the key data that will have a major impact on the EUR/USD pair will be Friday’s PCE inflation report, the Fed’s favorite inflation data.

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