EUR/USD Forecast: ECB President Lagarde and the FOMC Meeting Minutes in Focus

Highlights

• The EUR/USD gained 0.29% on Monday, ending the session at $1.09401.
• On Tuesday, ECB commentary will require consideration amid increasing speculation about ECB rate cuts.
• Towards the end of the session, the FOMC Meeting Minutes also warrant consideration.

Monday Overview

The EUR/USD gained 0.29% on Monday. Following a 0.52% rise on Friday, the EUR/USD ended the day at $1.09401. The EUR/USD fell to a low of $1.08974 before rising to a high of $1.09518.

ECB President Lagarde in the Spotlight

On Tuesday, ECB President Lagarde is on the calendar to speak. Comments relating to the economic outlook, inflation, and interest rates will influence buyer appetite for the EUR. Recently, ECB President Lagarde dismissed discussions about rate cuts. The ECB President said rate cut discussions would not commence for two quarters.

A deviation from previous comments would impact the EUR/USD.

With monetary policy as the focal point, ECB Executive Board member Elizabeth McCaul will also speak on Tuesday. Softer Eurozone inflation numbers for October and the weak macroeconomic environment support a less hawkish ECB rate path.

FOMC Meeting Minutes in the Spotlight

On Tuesday, the FOMC Meeting Minutes will garner investor interest. Recent US inflation and retail sales figures fueled bets on a May Fed rate cut. According to the CME FedWatch Tool, the probability of 25 basis points May rate cut increased from 30.6% to 47.7% over one week.

The FOMC Meeting Minutes could guide investors on other Fed considerations for a rate cut. A tight US labor market could remain one hurdle for the Fed doves, with the US unemployment rate at 3.9%.

Tight labor market conditions support wage growth, fueling consumer spending and demand-driven inflation. A hawkish Fed rate path keeps borrowing costs elevated, reducing disposable income. A downward trend in disposable income affects consumer spending and demand-driven inflation.

However, a downward trend in consumer spending could reignite fears of a hard landing. US private consumption contributes more than 60% to the US economy. A negative outlook on consumption and tight labor market conditions creates policy uncertainty.

Before the FOMC Meeting Minutes, US existing home sales and Chicago Fed National Activity Index (CFNAI) numbers will draw interest. A larger-than-expected fall in the CFNAI would support a more dovish Fed rate path. Economists forecast the CFNAI to fall from 0.02 to -0.01 in October.

Short-Term Forecast:

ECB and Fed monetary policy intentions remain the focal points. The EUR/USD trajectory will hinge on the FOMC and ECB meeting minutes. However, economic data also needs consideration. Private sector PMIs for November could influence who makes the first interest rate cut in 2024.

EUR/USD Price Action

Daily Chart

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

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

ECB President Lagarde and the FOMC Meeting Minutes will be the focal points.

A EUR/USD fall through the $1.09294 support level would bring sub-$1.09 into view.

The 14-period Daily RSI, 72.52, shows the EUR/USD in overbought territory. Selling pressure could intensify at $1.10.

4-Hour Chart

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

A EUR/USD move to the $1.10 handle would give the bulls a run at the $1.10720 resistance level.

However, a EUR/USD break below the $1.09294 support level would bring sub-$1.09 into play.

The 14-period RSI on the 4-hour chart, 78.74, shows the EUR/USD in overbought territory. Selling pressure could intensify at $1.10.