EUR/USD Advances to 3-Month High Despite EU Recession Warning

The Euro is testing its highest level since August 13 against the U.S. Dollar despite a European Union (EU) forecast calling for a recession to hit Europe. The price action indicates investors are still reacting to yesterday’s tepid U.S. consumer price index (CPI) report that drove down the odds of a supersized rate hike in December, while increasing the chances of a more modest 50 basis point rate hike.

At 11:48 GMT, the EUR/USD is trading 1.0289, up 0.0081 or +0.79%. On Thursday, the Invesco CurrencyShares Euro Trust ETF (FXE) settled at $94.09, up $1.72 or +1.86%.

The EU also warned revised up its inflation forecast from July, which implies the European Central Bank (ECB) would have to continue to raise rates aggressively at a time when the Fed may be considering a more modest rate hike from December on.

Furthermore, Thursday’s U.S. consumer inflation report indicated that inflation may have peaked, while the EU sees Euro Zone inflation peaking later in the year.

European Commission’s Economic Forecast Recap

The Euro Zone and most EU countries will head to an economic recession in the last quarter of 2022, according to the European Commission’s autumn economic forecast.

“The economic situation has deteriorated markedly and we are heading into two quarters of contraction,” said EU economy commissioner Paolo Gentiloni at a press conference.

The EU’s executive committee also revised up its inflation forecast from July, predicting that prices would peak at year-end and remain high in 2023. Inflation will average 9.3% in the EU and 8.5% in the Euro Zone for 2022, Brussels said.

“The EU is among the most exposed advanced economies (to high prices), due to its geographical proximity to the war and heavy reliance on gas imports from Russia,” the European Commission said in a statement.

“The energy crisis is eroding households’ purchasing power and weighing on production.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 1.0368 will reaffirm the uptrend. A move through .9730 will change the main trend to down. This is highly unlikely, but due to the prolonged move up in terms of price and time, the market is inside the window of time for a potentially bearish closing price reversal top.

On the upside, the nearest resistance is a 50% level at 1.0361. Additional resistance is a 61.8% level at 1.0556.

On the downside, the nearest support is a pair of 50% levels at 1.0076 and .9952.

Daily Swing Chart Technical Forecast

Trader reaction to 1.0208 is likely to determine the direction of the EUR/USD into the close on Friday.

Bullish Scenario

A sustained move over 1.0208 will indicate the presence of buyers. If this move creates enough upside momentum then look for the rally to possibly extend into the resistance cluster at 1.0361 – 1.0368.

Bearish Scenario

A sustained move under 1.0208 will signal the presence of sellers. This could trigger a break into the 50% level at 1.0076.

Side Notes

A close under 1.0208 will form a closing price reversal top. This won’t change the trend to down, but if confirmed, it could trigger the start of a 2 to 3 day correction.