EUR USD Analysis: Geopolitical Risks vs. Consumer Confidence Impact

Highlights

• The EUR/USD gained 0.10% on Friday, ending the week up 0.82% to $1.05930.
• Dollar weakness prevailed on dovish Fed chatter despite geopolitical tensions.
• Investor focus will be on the Middle East conflict and Eurozone Consumer Confidence figures on Monday.

Friday Overview

On Friday, the EUR/USD rose by 0.10%. Following a 0.43% gain on Thursday, the EUR/USD ended the week up 0.82% to $1.05930. The EUR/USD fell to a low of $1.05648 before rising to a high of $1.06037.

Eurozone Consumer Confidence in the Spotlight

Flash Eurozone Consumer Confidence figures for October will draw investor attention on Monday. A pickup in consumer confidence may raise hopes of an improving macroeconomic environment. However, economists forecast the Eurozone Consumer Confidence Index to fall from -17.8 to -18.2.

Eurozone private consumption accounts for more than 50% of the Eurozone economy. An uptrend in consumer confidence would signal an improving demand environment. However, a positive demand outlook may fuel demand-driven inflationary pressures, forcing the ECB to take a more aggressive rate path to curb spending.

Considering the influence of consumer confidence on the consumption outlook, investors must monitor ECB commentary throughout the session. The ECB will deliver its interest rate decision on Thursday. Hawkish speeches will likely raise fears of an ECB induced euro area recession.

Away from the economic calendar, news updates from the Middle East warrant consideration. An escalation in the Middle East conflict would fuel demand for the US dollar.

Chicago Fed National Activity Index in Focus

On Monday, the Chicago Fed National Activity Index will garner investor interest. A larger-than-expected rise in the Index may fuel bets on a more hawkish Fed rate path.

Economists forecast the Index to rise from -0.16 to 0.05 in September. Beyond the headline figure, the consumption and inflation components also need consideration. Consumption and inflation remain focal points for the Fed and interest rate decisions.

A pickup in consumption would fuel demand-driven inflation, forcing the Fed to take a more aggressive Fed rate path. Higher interest rates raise borrowing costs, impacting disposable income. A downtrend in disposable income would curb spending on non-essential items.

However, investors must monitor Fed commentary on Monday. Dovish comments will likely temper hawkish Fed bets.

Short-Term Forecast:

Geopolitical tensions will likely remain a headwind for the EUR/USD in the near term. However, a de-escalation in the Middle East and a pickup in euro area private sector activity may signal the beginnings of a EUR/USD recovery. The private sector PMIs will be in focus on Tuesday.

EUR/USD Price Action

Daily Chart

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

A EUR/USD move through the $1.06342 resistance level would support a run at the 50-day EMA.

Better-than-expected Eurozone Consumer Confidence figures will likely fuel demand for the EUR. However, the market may need a de-escalation in the Middle East conflict to make a decisive move.

On the other hand, an escalation in the Middle East conflict and a slump in consumer confidence would test buyer demand.

A EUR/USD fall below $1.05500 would give the bears a run at the $1.05230 support level.

The 14-period Daily RSI, 47.26, indicates a EUR/USD drop below the $1.05230 support level before entering oversold territory.

4-Hour Chart

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

A EUR/USD breakout from $1.06 would support a move to the 200-day EMA and $1.06342 resistance level.

However, a fall through the 50-day EMA would give the bears a run at the $1.05230 support level.

The 14-period RSI on the 4-hour chart, 52.77, indicates a EUR/USD move to the 200-day EMA and $1.06342 resistance level before entering overbought territory.