EUR/USD Forecast: A Delicate Balance Between ECB Sentiments and US Job Claims

Highlights

• On Wednesday, EUR/USD experienced a 0.18% decline, furthering Tuesday’s 0.12% drop.
• Lagarde’s upcoming address is poised to shape the EUR/USD’s trajectory.
• US jobless claims and Philly Fed Index: critical markers for Thursday’s financial climate.

Wednesday Overview

On Wednesday, the EUR/USD fell by 0.18%. Following a 0.12% loss on Tuesday, the EUR/USD ended the day at $1.06605. The EUR/USD rose to a high of $1.07368 before falling to a low of $1.06500.

French Business Confidence and ECB President Lagarde in Focus

The French economy will be in focus this morning. French business confidence will draw investor interest. The markets must assess the impact of ECB monetary policy moves on business sentiment.

Economists forecast the Business Confidence Index to climb from 96 to 97. A more marked increase in confidence would ease concerns over business investment and hiring. Plans to increase hiring would support the French economy.

French private consumption accounts for over 50% of GDP. Improving labor market conditions would fuel wage growth and consumer spending. However, a more upbeat labor market outlook would also support demand-driven inflation.

Late in the session, ECB President Lagarde and ECB Executive Board member Isabel Schnabel are on the calendar to speak. Lagarde will have more influence on the EUR/USD. A deviation from the Thursday press conference script would direct the EUR/USD.

US Labor Market Takes Center Stage

US initial jobless claims and the Philly Fed Manufacturing Index will be in focus on Thursday. A spike in US jobless claims would raise question marks about the FOMC projections for unemployment.

Weaker labor market conditions would weigh on spending and impact the US economy. US private consumption accounts for over 65% of GDP.

While initial jobless claims are vital, the Philly Fed Manufacturing Index also needs consideration. The markets will respond to economic indicators that could adjust the Fed interest rate path.

Economists forecast initial jobless claims to rise from 220k to 225k and the Philly Fed to slide from 12.0 to -0.07.

Short-Term Forecast:

Monetary policy and economic divergence continue to tilt in favor of the dollar. Steady labor market conditions and a grim euro area economic outlook support further EUR/USD downside. However, the dollar remains at risk of a stumble on a spike in jobless claims.

EUR/USD Price Action

Daily Chart

The EUR/USD remained below the 50-day and 200-day EMAs, affirming bearish price signals. A EUR/USD break below the $1.06342 support level would support a EUR/USD move toward sub-$1.06.

Better-than-expected US economic indicators would support the Fed rate path projection and the EUR/USD trajectory.

However, a EUR/USD return to $1.07 would give the bears a look at the $1.07635 resistance level. The EUR/USD needs hawkish ECB speeches and a spike in jobless claims to support a return to $1.07.

The 14-period Daily RSI at 34.06 supports a EUR/USD break below the $1.06342 support level before entering oversold territory.

4-Hour Chart

The EUR/USD sits below the 50-day and 200-day EMAs, reaffirming the bearish price signals. A EUR/USD break above the 50-day EMA would support a EUR/USD move toward the $1.07635 resistance level.

However, a break below the $1.06342 support level would give the bears a run at sub-$1.06.

The 14-period 4-Hourly RSI at 39.47 indicates a EUR/USD break below the $1.06342 support level and a return to sub-$1.06 before entering oversold territory.