EUR/USD Forecast: The German Economy and the US Services Sector in Focus

Highlights

• The EUR/USD gained 0.13% on Thursday, ending the session at $1.09020.
• On Friday, the German economy will be in the spotlight.
• The US private sector PMIs for November will also be in focus.

Thursday Overview

The EUR/USD gained 0.13% on Thursday. After a 0.21% loss on Wednesday, the EUR/USD ended the day at $1.09020. The EUR/USD fell to a low of $1.08821 before rising to a high of $1.09306.

The German Economy Takes Center Stage

On Friday, the German economy will be in the spotlight. Q3 GDP and business sentiment figures will garner investor interest.

Upward revisions to preliminary Q3 GDP numbers could provide early support. However, business sentiment figures must signal an improving outlook to support hopes of a pickup in economic activity.

Improving business sentiment could fuel a pickup in business investment and staffing levels. An upward trend in employment could fuel consumer spending. Euro area private consumption contributes over 50% to the euro area economy.

However, a more positive economic outlook could delay the timing of ECB rate cut discussions.

Economists forecast the German Ifo Business Climate Index to increase from 86.9 to 87.5 in November. According to preliminary figures, the German economy contracted by 0.1% in Q3 after expanding by 0.1% in Q2.

With the German economy in focus, ECB commentary also needs consideration. ECB President Christine Lagarde is on the calendar to speak. Forward guidance on inflation and interest rates will remain the focal points.

US Private Sector PMIs in Focus

On Friday, US private sector PMIs for November will draw investor interest. Market bets on a May Fed rate cut linger despite better-than-expected US labor market and consumer sentiment numbers.

An unexpected pickup in service sector activity could further ease bets on a May Fed rate cut. The US services sector contributes over 70% to the US economy and is the driving force behind inflation. A pickup in activity could allow the Fed to take a more hawkish rate path to tame inflation.

Subcomponents, including prices, new orders, and employment, also need consideration. Input and output price trends could impact consumer inflation trends and the Fed.

Short-Term Forecast:

Near-term EUR/USD trends hinge on the US services sector PMI numbers. An unexpected pickup in sector activity and an upswing in input and output price inflation could signal a more hawkish Fed rate path.

EUR/USD Price Action

Daily Chart

The EUR/USD held 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 toward the $1.10720 resistance level.

The German economy and the US services sector are the focal points for the Friday session.

However, a EUR/USD fall below the $1.09 handle would bring the $1.07838 support level into play.

The 14-period Daily RSI, 65.28, suggests a EUR/USD move through the $1.09294 resistance level before entering overbought territory.

4-Hour Chart

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

A EUR/USD break above the $1.09294 resistance level would bring the $1.10720 resistance level into play.

However, a EUR/USD fall through the 50-day EMA would give the bears a run at the $1.07838 support level.

The 14-period RSI on the 4-hour chart, 50.47, suggests a EUR/USD move to $1.10 before entering overbought territory.