EUR/USD Forecast: Euro Area Woes vs. US Consumer Confidence Showdown

Highlights

• EUR/USD fell sharply, sliding by 0.86% on Thursday, erasing Wednesday’s gains.
• ECB President Lagarde’s speech could give insights into future interest rate policies.
• US consumer sentiment and Fed commentary may garner more investor interest after the US CPI Report.

Thursday Overview

On Thursday, the EUR/USD slid by 0.86%. Reversing a 0.13% gain from Wednesday, the EUR/USD ended the day at $1.05280. The EUR/USD rose to a high of $1.06396 before falling to a low of $1.05256.

Inflation, Production, and ECB President Lagarde in Focus

French inflation and Eurozone industrial production figures will garner investor interest on Friday. Inflation remains a hot topic of debate for the ECB. Upward revisions to prelim French inflation figures may test market bets on an ECB hold on interest rates.

Amidst the elevated interest rate environment, the economic outlook for the euro area has gotten murkier. Eurozone industrial production numbers would need to beat forecasts to support the EUR/USD at current levels.

The euro area manufacturing sector contributes less than 20% to GDP. However, recessionary jitters expose the EUR/USD to weak manufacturing data.

Beyond the numbers, ECB President Lagarde speeches will warrant consideration. After the ECB monetary policy meeting minutes, forward guidance on interest rates will influence buyer appetite for the EUR/USD.

US Consumer Sentiment and Fed Commentary in Focus

Michigan Consumer Sentiment figures from the US will garner investor interest on Friday. After the hotter-than-expected US CPI Report, an improvement in consumer sentiment would support a more hawkish Fed rate path.

An uptrend in consumer confidence would signal a pickup in consumer spending and fuel demand-driven inflationary pressure. Higher interest rates would affect borrowing costs and disposable incomes, forcing consumers to curb spending. A pullback in spending would ease demand-driven inflationary pressures.

Beyond the numbers, updates on the Middle East conflict and upcoming Fed speeches warrant attention. FOMC member Patrick Harker is on the economic calendar to speak.

Short-Term Forecast:

The EUR/USD rests in the hands of US consumer sentiment and Fed commentary today. Hawkish Fed chatter and a pickup in consumer sentiment would tilt monetary policy divergence toward the US dollar. An escalation in the Middle East conflict would also fuel demand for the safe havens, including the greenback.

EUR/USD Price Action

Daily Chart

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

A EUR/USD break above the $1.06342 resistance level would bring the 50-day EMA into play.

Dovish Fed comments and a slump in US consumer sentiment would ease the buying appetite for the US dollar. However, hawkish Fed comments would support a EUR/USD break below the $1.05230 support level.

A break below the $1.05230 support level would give the bears a run at sub-$1.05.

The 14-period Daily RSI, 42.51, indicates a EUR/USD drop below $1.05 before entering oversold territory.

4-Hour Chart

The EUR/USD sits below the 50-day and the 200-day EMAs, affirming bearish price signals. A EUR/USD break above the 50-day EMA would support a move toward the $1.06342 resistance level.

However, a fall through the $1.05230 support level would give the bears a run at sub-$1.05.

The 14-period RSI on the 4-hour chart, 60.53, supports a EUR/USD break above the 50-day EMA before entering overbought territory.