EUR/USD Forecast: ECB Inflation and US Data Insights Pre-November Inflation Reports

Highlights

• The EUR/USD rose by 0.28% on Friday, ending the session at $1.09328.
• ECB commentary and German business sentiment figures contributed to the gains on Friday.
• On Monday, ECB President Lagarde and US economic indicators are focal points.

Friday Overview

The EUR/USD rose by 0.28% on Friday. Following a 0.13% gain on Thursday, the EUR/USD ended the day at $1.09328. The EUR/USD fell to a low of $1.08950 before rising to a high of $1.09487.

ECB President Lagarde in the Spotlight

On Monday, ECB President Christine Lagarde is on the calendar to speak. The ECB President is unlikely to change views on inflation and the ECB rate path since Friday. On Friday, President Lagarde warned the battle against inflation isn’t over.

Euro area member state and Eurozone inflation numbers are out on Wednesday and Thursday. The flash figures for November could dictate the ECB rate trajectory. Hotter-than-expected inflation could delay ECB discussions on rate cuts beyond H1 2024.

While inflation and central bank commentary remain the focal points, unemployment figures will garner investor interest. French unemployment benefit claims for October need consideration. A larger-than-expected rise in benefits claims could ease pressure on the ECB to keep rates higher for longer.

A weaker labor market environment impacts wage growth, disposable income, and consumer confidence. The net effect is a negative outlook on consumer spending, easing demand-driven inflationary pressures.

Economists forecast French unemployment benefit claims to increase by 25.1k in October after falling 15.4k in September.

US Housing and Manufacturing Sectors in Focus

On Monday, US new home sales and Dallas Fed Manufacturing Index numbers will draw investor interest. The US housing sector gives a litmus test of the US economy. A deterioration in housing sector conditions could impact consumer confidence and spending.

Significantly, a downward trend in consumer spending could ease demand-driven inflationary pressures and the need for a hawkish rate path.

Investors must also consider the manufacturing sector numbers. An unexpected fall in the Index could test the market bets on a US soft landing.

Economists forecast new home sales to decline by 4.0% (Sept: +12.3%) and the Index to rise from -19.2 to -17.0 in November.

Short-Term Forecast:

Near-term trends for the EUR/USD will hinge on the euro area and US inflation numbers in the second half of the week. Softer US inflation figures and a pickup in euro area inflation would tilt monetary policy divergence toward the EUR. A more hawkish ECB could support a EUR/USD move toward $1.11.

EUR/USD Price Action

Daily Chart

The EUR/USD remained above the 50-day and 200-day EMAs, affirming bullish price signals. Significantly, the 50-day EMA converged on the 200-day EMA. A bullish cross of the 50-day EMA through the 200-day EMA would support a EUR/USD return to $1.10.

A EUR/USD hold above the $1.09294 support level would give the bulls a run at the $1.10720 resistance level.

ECB President Lagarde and the US economic calendar are focal points on Monday.

However, a EUR/USD break below the $1.09294 support level would bring the $1.08500 handle into play.

The 14-period Daily RSI, 68.56, indicates a EUR/USD move to the November 21 high of $1.09652 before entering overbought territory.

4-Hour Chart

The EUR/USD remained above the 50-day and 200-day EMAs, reaffirming bullish price signals.

A EUR/USD return to $1.10 would support a move to the $1.10720 resistance level.

However, a EUR/USD drop below the $1.09294 support level would bring the 50-day EMA into play.

The 14-period RSI on the 4-hour chart, 62.36, indicates a EUR/USD move to the $1.10720 resistance level before entering overbought territory.