EUR/USD Forecast: Labor Market Data and Central Bank Commentary in Focus

Highlights

• The EUR/USD rallied 0.57% on Wednesday, ending the session at $1.11050.
• On Thursday, French employment figures need consideration.
• Later in the session, US labor market and housing sector data will also be focal points.

Wednesday Overview

The EUR/USD rallied by 0.57% on Wednesday. Following a 0.31% gain from Tuesday, the EUR/USD ended the session at $1.11050. The EUR/USD fell to a low of $1.10284 before rising to a high of $1.11227.

French Labor Market in Focus

On Thursday, employment figures from France will draw investor interest. Softer labor market conditions could impact wage growth. A downward trend in wage growth could affect consumer spending and dampen demand-driven inflationary pressures. Softer demand-driven inflation would support a less hawkish ECB rate path.

Economists forecast unemployment benefit claims to increase by 15.1k in November vs. 9.2k in October. As a result, economists expect the total number of jobseekers to rise from 2,821.4k to 2,836.5k.

The US Labor Market and Housing Sector in the Spotlight

On Thursday, US jobless claims will garner investor interest. Tight labor market conditions support wage growth and disposable income. Upward trends in disposable income would fuel consumer spending and demand-driven inflation. The net effect could be reduced bets on a Q1 2024 Fed rate cut.

A higher-for-longer rate path could impact borrowing costs and reduce disposable income. Downward trends in disposable income would affect consumer spending and dampen inflationary pressures.

Economists forecast initial jobless claims to increase from 205k to 210k in the week ending December 23.

However, investors must also consider pending home sales. Economists consider housing sector data as leading indicators of the US economy. Better-than-expected numbers would support consumer confidence and spending. Economists forecast pending home sales to increase by 1.0% in November (Oct: -1.5%).

Beyond the numbers, Fed commentary also needs monitoring. FOMC member commentary on recent inflation and labor market numbers could move the dial.

Short-Term Forecast:

Near-term trends for the EUR/USD remain hinged on euro area inflation trends and ECB commentary. A pickup in euro area inflationary pressure and rising bets on a Q1 2024 Fed rate cut would support a EUR/USD move to $1.12.

EUR/USD Price Action

Daily Chart

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

A EUR/USD break above the Wednesday high of $1.11227 would support a move to the $1.12 handle.

Central bank commentary, Euro area employment data, and the US economic calendar will be the focal points.

However, a EUR/USD fall below the $1.11 handle would bring the 1.10720 support level into play.

The 14-period Daily RSI, 68.13, indicates a EUR/USD move to the $1.11500 handle before entering overbought territory.

4-Hour Chart

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

A EUR/USD break above the $1.11500 handle would support a move to the $1.12 handle.

However, a drop below the $1.11 handle would bring the $1.10720 support level into play.

The 14-period RSI on the 4-hour chart, 75.85, shows the EUR/USD in overbought territory. Selling pressure could intensify at $1.11500.