EUR/USD Forecast: German Trade and US Jobs Report in Focus Pre-US ISM Services

Highlights

• The EUR/USD gained 0.49% on Thursday and ended the session at $1.06216.
• On Friday, German trade data will set the tone for the session, a slump in exports could impact the EUR/USD.
• The US Jobs Report and ISM Services PMI may end the Fed rate hike cycle.

Thursday Overview

The EUR/USD gained 0.49% on Thursday. Reversing a 0.04% slip from Wednesday, the EUR/USD ended the day at $1.06216. The EUR/USD fell to a low of $1.05645 before rising to a high of $1.06675.

German Trade and Eurozone Unemployment in Focus

On Friday, German trade data will kick-start the European session. Economists forecast the trade surplus to narrow from €16.6 billion to €16.3 billion in September. Beyond the headline figure, investors must consider exports. Recent manufacturing PMI numbers signaled a deteriorating demand environment. New business inflows fell at the most marked pace since May 2020.

German exports of goods and services accounted for over 50% of the GDP. A weakening demand environment could raise fears of a prolonged German recession.

Other stats include French industrial production and unemployment figures for Italy and the Eurozone. However, the numbers are unlikely to materially influence the appetite for the EUR/USD, barring a surprise spike in unemployment.

The US Jobs Report and Services PMI in Focus

On Friday, the US Jobs Report and service sector PMI numbers will garner investor attention. Fed Chair Powell discussed needing softer labor market conditions for price stability. Labor market numbers on Thursday eased bets on Fed rate hikes. More modest wage growth and lower-than-expected nonfarm payrolls could close the door on Fed rate hikes.

A deteriorating labor market environment impacts wage growth, disposable income, and consumer confidence. The net effect is a pullback in spending, easing demand-driven inflationary pressures.

However, the ISM Services PMI will also move the dial. A slump in service sector activity could fuel fears of a hard landing. The US services sector contributes over 70% to the US economy. A slowdown in activity amidst a weakening consumption outlook may impact the appetite for the US dollar.

Short-Term Forecast:

EUR/USD trends hinge on the US labor market. A deterioration in labor market conditions could close the door on Fed rate hikes and give the EUR/USD a run at $1.07. However, concerns about the euro area economy remain headwinds for the EUR. Recent economic indicators demonstrated a deteriorating macroeconomic environment.

EUR/USD Price Action

Daily Chart

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

A EUR/USD break above the $1.06342 resistance level and 50-day EMA would support a move to the 200-day EMA. German trade data and the US economic indicators will be the focal points on Thursday.

However, a EUR/USD fall below $1.06 would give the bears a run at the $1.05173 support level. Hotter-than-expected US wage growth and a pickup in US service sector activity could sink the EUR.

The 14-period Daily RSI, 53.15, indicates a EUR/USD return to $1.07 before entering overbought territory.

4-Hour Chart

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

A EUR/USD break above the $1.06342 resistance level would support a move to $1.07.

However, a fall through the 200-day and 50-day EMAs would give the bears a run at the $1.05173 support level.

The 14-period RSI on the 4-hour chart, 56.62, suggests a EUR/USD move to $1.07 before entering overbought territory.