EUR/USD Forecast: German Producer Prices and ECB Insight to Test Move Toward $1.10

Highlights

• The EUR/USD rose by 0.52% on Friday, ending the session at $1.09088.
• On Monday, German producer prices and ECB commentary will be focal points.
• Investors should monitor Fed speeches later in the session.

Friday Overview

The EUR/USD rose by 0.52% on Friday. Following a 0.05% gain on Thursday, the EUR/USD ended the day at $1.09088. The EUR/USD fell to a low of $1.08246 before rising to a high of $1.09139.

German Producer Prices and the ECB in the Spotlight

On Monday, German producer prices for October will garner investor interest. The markets expect the ECB to begin discussing rate cuts after the softer Eurozone inflation figures. However, a pickup in demand could fuel consumer price inflation.

Producer prices reflect the demand environment. Increasing demand allows producers to raise prices. In contrast, a low-demand environment forces producers to cut costs to win new business. Producer price trends influence demand-driven inflationary pressures.

Economists forecast producer prices to decline by 11.0% year-over-year vs. a 14.7% fall in September.

Beyond the numbers, ECB Chief Economist Philip Lane is on the calendar to speak. Comments relating to the economy, inflation, and interest rates need consideration.

Fed Speakers to Test the Theory of a May Rate Cut

On Monday, Fed speakers need monitoring. Following the shift in market sentiment toward the Fed interest rate path, hawkish speeches could ease bets on a May Fed rate cut. Inflation softened in October, with consumer confidence waning. However, labor market conditions remain tight, supporting wage growth.

Tight labor market conditions support wage growth, fueling spending and demand-driven inflationary pressures. A more hawkish Fed rate path raises borrowing costs and reduces disposable income, affecting spending and inflation.

Fed signals of rate cuts after aggressive policy moves could impact the US dollar. There are no economic indicators for investors to consider.

Short-Term Forecast:

Near-term EUR/USD trends hinge on central bank speeches and private sector PMIs. Rising bets on a May Fed rate hike have supported a EUR/USD return to $1.09. However, a deteriorating Euro area macroeconomic environment could force the ECB to cut rates sooner than expected. Private sector PMIs will be pivotal this week.

EUR/USD Price Action

Daily Chart

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

A EUR/USD return to $1.09200 would support a break above the $1.09294 resistance level.

German producer prices and central bank speeches will be focal points.

Weaker-than-expected German producer prices and dovish ECB speeches would support a EUR/USD drop to the $1.07838 support level. A fall through the $1.07838 support level would bring the 200 EMA into play.

The 14-period Daily RSI, 70.27, shows the EUR/USD in overbought territory. Selling pressure could intensify at the $1.09294 resistance level.

4-Hour Chart

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

A EUR/USD break above the $1.09294 resistance level would support a move toward $1.10.

However, a EUR/USD drop to $1.08500 would give the bears a run at the 50-day EMA and the $1.07838 support level. Buying pressure could intensify at the $1.07838 support level. The 50-day EMA is confluent with the support level.

The 14-period RSI on the 4-hour chart, 75.61, shows the EUR/USD in overbought territory. Selling pressure could intensify at the $1.09294 resistance level.