EUR/USD Weekly Forecast: Inflation and Central Bank Influences on Trends

Highlights

• The EUR/USD rose by 0.22% to $1.09328 in the week ending November 24.
• In the week ending December 1, euro area and US inflation numbers will influence EUR/USD trends.
• ECB and Fed commentary will also move the dial, with ECB President Lagarde and Fed Chair Powell on the calendar to speak.

Weekly Overview of Week Ending November 24, 2023

In the week ending on November 24, the EUR/USD gained 0.22%, closing the week at $1.09328. The EUR/USD rose to a Tuesday high of $1.09652 before falling to a Wednesday low of $1.08522.

European Economic Indicators to Consider

This Tuesday, the investor focus will turn to German consumer confidence numbers. A positive shift in consumer confidence could give further indications of an improving macroeconomic environment.

However, inflation numbers for Germany (Wed), Spain (Wed), France (Thurs), and the Eurozone (Thurs) will have a more substantial impact on ECB policy speculations. Weaker numbers could lead to discussions about the possibility of rate cuts.

Additionally, German retail sales, French consumer spending, and unemployment numbers for Germany and the Eurozone need consideration. While these reports are relevant, they are likely to take a backseat in importance compared to the inflation numbers.

At the end of the week, Manufacturing PMI data for France, Germany, Italy, Spain, and the Eurozone will be in focus. Among these, the PMI numbers for Italy and the Eurozone could draw more significant investor attention. It is important to note that the Manufacturing PMIs for the Eurozone, France, and Germany will be finalized numbers.

ECB Influences

ECB President Lagarde is on the calendar to speak on Monday, Tuesday, Thursday, and Friday. On Tuesday, ECB Chief Economist Philip Lane will speak. ECB Executive Board members Elizabeth McCaul (Tues/Thurs), Andrea Enria (Thurs), Kerstin af Jochnick, and Frank Elderson will also deliver speeches.

References to inflation, the economic outlook, and the timing of interest rate cut discussions would move the dial.

US Consumer Confidence, Inflation, and Spending in Focus

At the start of the week, the US housing sector and consumer confidence will influence the appetite for the US dollar. The housing sector serves as a crucial barometer for the overall US economy. However, investors must give greater attention to consumer confidence numbers.

A decline in consumer confidence could signify a negative outlook for consumer spending. Significantly, private consumption contributes over 60% to the US economy. A subdued consumer spending outlook may have repercussions on the economy and could reduce the need for a more aggressive Fed rate hike trajectory.

On Wednesday, the spotlight will be on Q3 US GDP figures. Revisions to the initial estimates could dictate the appetite for the US dollar.

However, personal income, inflation, and spending data could exert more influence on Fed policy moves. Softer inflation and a slowdown in spending and income might fuel speculation about a Fed rate cut in May. These critical figures are out on Thursday.

ISM Manufacturing PMIs on Friday also need consideration. The manufacturing sector contributes less than 30% to the US economy. However, any deterioration in sector conditions could test bets on a soft landing.

Fed Speakers in the Spotlight as Rate Cut Bets Falter

With inflation in the spotlight, Fed speakers will influence market sentiment toward Fed rate cuts. Fed Chair Powell is on the calendar to speak on Friday. FOMC members Barr, Bowman, Goolsbee, Mester, and Waller will also deliver speeches.

Comments relating to inflation, the economic outlook, and monetary policy will need consideration.

Short-Term Forecast:

The near-term trends for the EUR/USD hinge on inflation numbers and central bank commentary. Softer inflation across the euro area and the US would leave the respective economies to dictate rate cut expectations. A weaker euro area macroeconomic backdrop could raise bets on the ECB cutting rates before the Fed.

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 return to $1.10 would give the bulls a run at the $1.10720 resistance level and the $1.11 handle.

Inflation figures and central bank forward guidance will influence near-term price trends.

A break below the $1.09294 support level would bring the $1.07838 support level into view. Hotter-than-expected US inflation figures and softer euro area inflation numbers could sink the EUR/USD.

The 14-period Daily RSI at 67.79 indicates a EUR/USD move to $1.10 before entering overbought territory.

4-Hour Chart

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

A EUR/USD break above last week’s high of $1.09652 would support a move to the $1.10720 resistance level.

However, a fall through the $1.09294 support level would bring the 50-day EMA into play. A drop below the 50-day EMA would give the bears a run at the $1.07838 support level.

The 14-period 4-Hourly RSI at 59.98 suggests a EUR/USD move to $1.10 before entering overbought territory.