EUR/USD Weekly Forecast: Service PMIs, the German Economy and the US Jobs Report

Highlights

• The EUR/USD declined by 0.49% to $1.08789 in the week ending December 1.
• Softer-than-expected Eurozone figures fueled a Thursday EUR/USD sell-off, leaving the EUR/USD in negative territory.
• The focus in the upcoming weekend will be on service sector PMIs, the German economy, and the US Jobs Report.

Weekly Overview of the EUR/USD in the Week Ending December 1, 2023

In the week ending on December 1, the EUR/USD declined 0.49%, closing the week at $1.08789. The EUR/USD rose to a Wednesday high of $1.10171 before falling to a Friday low of $1.08286.

The Key Euro Area Economic Indicators for the Week Ahead

Monday brings the German economy into the spotlight as investors await the release of trade data for October. These figures will reveal any shifts in global trade dynamics. A decline in exports would fuel to concerns about a prolonged German economic downturn and could impact the sentiment toward the EUR/USD.

On Tuesday, service sector PMIs take center stage. The services sector contributes significantly, accounting for over 60% of the Eurozone economy. A dip in service sector activity would alleviate inflationary pressures, potentially supporting a less hawkish stance from the ECB. The services sector is the primary driver of Eurozone inflation trends.

German factory orders (Wed) and industrial production (Thurs) data warrant scrutiny. Outperforming numbers could kindle hopes of a softer economic downturn. Additionally, Eurozone GDP figures will garner investor interest on Thursday, shedding light on the broader macroeconomic environment.

On Friday, finalized German inflation figures will draw investor attention. Revisions to these numbers could influence expectations regarding a potential ECB rate cut in H1 2024.

While the data is relevant, investors must monitor any commentary from the ECB. Deviations from a commitment for higher-for-longer could sway market sentiment. ECB President Christine Lagarde is on the calendar to speak on Monday an Thursday.

US Dollar

Factory orders will kickstart the week’s events for the US dollar. However, unless there is a significant drop in orders, investors may exercise caution, awaiting more impactful reports slated for Tuesday.

Tuesday could be crucial, with the focus on the all-important ISM Non-Manufacturing PMI and JOLTs Job Openings. A notable uptick in service sector activity could challenge bets on a less hawkish Fed rate trajectory. Nonetheless, the labor market data could sway buyer sentiment towards the US dollar.

A decline in job openings and a modest increase in ADP nonfarm payrolls on Wednesday might offer early signs of fatigue in the US labor market.

Thursday brings jobless claims, unit labor costs, and nonfarm productivity figures into the equation. However, it is the US Jobs Report that will take center stage on Friday. Softer wage growth and looser labor market conditions could heighten speculation about a Fed rate cut in H1 2024.

A deterioration in labor market conditions and waning consumer confidence could signal a sharp contraction in consumer spending. Such a pullback in spending would alleviate demand-driven inflationary pressures and adversely affect the broader economy. US private consumption contributes over 60% to the economy.

Short-Term Forecast:

Near-term EUR/USD trends hinge on the services PMIs and the US Jobs Report. Weaker numbers from the Euro area could fuel fears of a prolonged Eurozone recession. In contrast, tight US labor market conditions would keep the Fed on watch, tilting policy divergence toward the US dollar. The US ISM Non-Manufacturing PMI and US wage growth could be the key stats.

EUR/USD Price Action

Daily Chart

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

A EUR/USD break above the $1.09294 resistance level would support a move to the $1.10720 resistance level and the $1.11 handle.

Service sector PMIs and the US Jobs Report will be the focal points for the EUR/USD pair.

A fall below the Friday low of $1.08286 would give the bears a run at the $1.07838 support level. A hotter-than-expected US Jobs Report and steady US service sector activity could sink the EUR/USD.

The 14-period Daily RSI at 56.66 suggests a EUR/USD return to $1.10 before entering overbought territory.

4-Hour Chart

The EUR/USD sat below the 50-day EMA while holding above the 200-day EMA, sending bearish near-term but bullish longer-term price signals.

A EUR/USD break above the 50-day EMA and $1.09294 resistance level would support a move to the $1.10720 resistance level.

However, a drop below the $1.08500 handle would give the bears a run at the 200-day EMA and the $1.07838 support level.

The 14-period 4-Hourly RSI at 36.22 indicates a EUR/USD drop below the $1.08500 handle before entering oversold territory.