EUR/USD Forecast: Euro Area and US Services PMIs and JOLTs Job Openings in Focus

Highlights

• The EUR/USD fell by 0.40% on Monday, ending the session at $1.08358.
• Euro area service sector PMIs will draw investor interest on Tuesday.
• US ISM Non-Manufacturing PMI and JOLTs Job Openings will also be focal points.

Monday Overview

The EUR/USD fell by 0.40% on Monday. Following a 0.06% loss on Friday, the EUR/USD ended the day at $1.08358. The EUR/USD rose to a high of $1.08949 before falling to a low of $1.08040.

Eurozone Services in the Spotlight

On Tuesday, euro area service sector PMIs will be in focus. November PMI numbers for Italy and finalized PMIs for France and Germany will garner investor interest. A less marked contraction across the euro area service sector would support buyer appetite for the EUR/USD.

However, the Eurozone Services PMI and subcomponents will likely have more impact. According to the preliminary survey, the Eurozone Services PMI increased from 47.8 to 48.2 in November. Significantly, an improving services sector could allow the ECB to delay rate cut discussions.

Service sector inflation softened from 4.6% to 4.0% in November. However, services remain a key contributor to inflation. Higher prices would align with the ECB’s expectations of a pickup in inflationary pressures. According to the preliminary survey, an increase in input costs led to output price inflation hitting a three-month high.

Significantly, the services sector accounts for over 70% of the Eurozone economy. A less marked contraction across the services sector would ease fears of a prolonged recession.

A higher-for-longer ECB rate path would keep borrowing costs elevated. Elevated borrowing costs could reduce demand for services and dampen service sector-driven inflation.

With the services sector in focus, investors must monitor ECB commentary in response to the PMI and sub-components. An improving macroeconomic backdrop and support for a higher-for-longer rate path could drive demand for the EUR/USD.

US Services and the Labor Market in Focus

On Tuesday, the ISM Non-Manufacturing PMI and JOLTs Job Openings will garner investor interest. An unexpected fall in the ISM Non-Manufacturing PMI and a larger-than-expected drop in Job Openings would support bets on a Q1 2024 Fed rate cut.

However, investors must consider the sub-components, including employment and inflation.

Significantly, the US services sector accounts for over 70% of the US economy and is the driving force behind US inflation. Softer price pressures would raise bets on a Q1 2024 Fed rate cut.

Soft labor market conditions would also support bets on a Q1 2024 rate cut. A deteriorating labor market affects wage growth and consumer confidence. The combined effect could be a pullback in consumer spending, dampening demand-driven inflation. A weaker consumption outlook would ease the need for a hawkish Fed rate path.

Short-Term Forecast:

EUR/USD near-term trends will likely hinge on ISM Non-Manufacturing PMI and the US Jobs Report. Divergence in service sector activity and price pressures would impact monetary policy expectations.

EUR/USD Price Action

Daily Chart

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

A EUR/USD break above the $1.09294 resistance level would support a move to the $1.10 handle and the $1.10720 resistance level.

Service sector PMIs and US JOLTs Job Openings will be the focal points for the session.

However, a EUR/USD fall through the $1.07838 support level and the 50-day EMA would bring the 200-day EMA into play. Buying pressure could intensify at the $1.07838 support level. The 50-day EMA is confluent with the support level.

The 14-period Daily RSI, 51.98, indicates a EUR/USD return to $1.10 before entering overbought territory.

4-Hour Chart

The EUR/USD sat below the 50-day EMA while holding above the 200-day EMA, reaffirming bearish near-term but bullish longer-term price signals.

A EUR/USD break above the 50-day EMA and the $1.09294 resistance level would give the bulls a run at $1.10.

However, a EUR/USD drop below the 200-day EMA would bring the $1.07838 support level into play.

The 14-period RSI on the 4-hour chart, 31.96, indicates a EUR/USD drop to the $1.08000 handle before entering oversold territory.