EUR/USD Forecast: US Private Sector Data in the Spotlight

Highlights

• The EUR/USD gained 0.31% on Tuesday, ending the session at $1.10419.
• On Wednesday, ECB and Fed commentary need monitoring.
• US private sector economic indicators will also warrant investor attention.

Tuesday Overview

The EUR/USD gained 0.31% on Tuesday. Reversing a 0.06% loss from Monday, the EUR/USD ended the session at $1.10419. The EUR/USD fell to a low of $1.10073 before rising to a high of $1.10451.

ECB Commentary in the Spotlight

On Wednesday, ECB commentary needs monitoring throughout the session. Investors have brushed aside recent warnings of a higher-for-longer ECB rate path to tame inflation. However, sentiment could change if ECB Executive Board members continue to send warnings.

Messages from the ECB contrast with US economic indicators that supported bets on a March Fed rate cut.

There are no euro area economic indicators for investors to consider. The lack of stats from the euro area will give the US economic calendar more weighting.

The US Private Sector in the Spotlight

On Wednesday, Richmond Fed Manufacturing and Services and Dallas Fed Services data will garner investor interest. Better-than-expected numbers could raise bets on a US soft landing.

Recent US economic indicators reflect a robust US economy. However, softer inflation supported bets on a March Fed rate cut. Hints of a pickup in demand-driven inflation could impact sentiment toward the Fed rate path.

Economists forecast the Richmond Fed Manufacturing Index to fall from -5 to -6 and the Services Index to hold at 1. However, economists expect the Dallas Fed Services Index to increase from -11.6 to -11.5 in December.

Beyond the numbers, investors must track Fed commentary. Reaction to recent inflation numbers and forward guidance on interest rates would move the dial.

Short-Term Forecast:

Near-term trends for the EUR/USD will likely hinge on euro area inflation and ECB commentary. Hotter-than-expected euro area inflation numbers would align with recent warnings from the ECB and support a move toward $1.11.

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 $1.10500 handle would give the bulls a run at the $1.10720 resistance level.

The US economic calendar and central bank commentary will impact buyer demand for the EUR/USD.

However, a EUR/USD drop below the $1.10 handle would support a fall toward the $1.09294 support level.

The 14-period Daily RSI, 63.11, suggests a EUR/USD break above the $1.10720 resistance level before entering overbought territory.

4-Hour Chart

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

A EUR/USD move through the $1.10500 handle would bring the $1.10720 resistance level into play.

However, a fall below the $1.10 handle would give the bears a run at the 50-day EMA and the $1.09294 support level.

The 14-period RSI on the 4-hour chart, 64.76, indicates a EUR/USD break above the $1.10720 resistance level before entering overbought territory.