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EUR/USD Forecast: US Producer Prices and the Fed in the Spotlight

By:
Bob Mason
Updated: Dec 13, 2023, 05:09 GMT+00:00

Eurozone industrial production numbers for the Eurozone will draw investor interest before the Fed. Policy bets could test the EUR/USD on Wednesday.

EUR/USD Forecast

In this article:

Highlights

  • The EUR/USD rose by 0.27% on Tuesday, ending the session at $1.07941.
  • On Wednesday, Eurozone industrial production requires attention.
  • Late in the session, the focal points will be the Fed interest rate decision, FOMC projections, and the press conference.

Tuesday Overview

The EUR/USD rose by 0.27% on Tuesday. Following a 0.05% gain on Monday, the EUR/USD ended the day at $1.07941. The EUR/USD fell to a low of $1.07582 before rising to a high of $1.08277.

Eurozone Industrial Production in Focus

On Wednesday, Eurozone industrial production figures for October will garner investor interest. The manufacturing sector accounts for less than 40% of the Eurozone economy. However, weakness in the euro area economy could support bets on a less hawkish ECB rate path. A deteriorating demand environment remains a concern despite current inflation levels.

Economists forecast industrial production to decline by 0.3% in October vs. a 1.1% slide in September.

With the ECB delivering its interest rate decision on Thursday, the EUR/USD could be more sensitive to the numbers.

US Producer Prices and the Fed in the Spotlight

On Wednesday, US producer prices need consideration. An increase in producer prices could indicate an improving demand environment. Within an improving demand environment, producers pass price increases on to consumers, driving demand-driven inflation. A positive inflation outlook could force the Fed to leave rates higher for longer to curb spending and dampen inflationary pressures.

Economists forecast producer prices to increase by 1.0% in November (Oct: +1.3%).

While the producer prices are a leading indicator of inflation, investors may hold back on decisive moves. The focal points will be the Fed interest rate decision, FOMC projections, and FOMC press conference. With the markets betting on the Fed leaving interest rates steady, the FOMC projections and press conference will move the dial.

Upward revisions to inflation, growth, and interest rate forecasts would drive buyer demand for the US dollar. However, Fed Chair Powell’s views on rate cut discussions also need consideration.

Short-Term Forecast:

Near-term trends for the EUR/USD will hinge on the Fed and ECB (Thurs) policy decisions and forward guidance. Recent economic indicators and central bank speeches suggest a monetary policy tilt toward the US dollar on resilient macroeconomic fundamentals.

EUR/USD Price Action

Daily Chart

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

A EUR/USD return to the $1.08 handle would give the bulls a run at the $1.09294 resistance level.

Eurozone industrial production and the Fed are the focal points.

However, a EUR/USD fall through the $1.07838 support level and the EMAs would bring sub-$1.07 into view.

The 14-period Daily RSI, 48.03, indicates a EUR/USD fall below the $1.07000 handle before entering oversold territory.

EUR/USD Daily Chart sends bullish price signals.
EURUSD 131223 Daily Chart

4-Hour Chart

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

A EUR/USD break above the 200-day EMA would support a move to the 50-day EMA and the $1.0850 handle.

However, a EUR/USD drop below the $1.07838 support level would bring sub-$1.07500 into view.

The 14-period RSI on the 4-hour chart, 50.27, indicates a EUR/USD move through the 50-day EMA before entering overbought territory.

4-Hourly Chart sends bearish price signals.
EURUSD 131223 4 Hourly Chart

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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