EUR/USD Forecast: Amid Eurozone Woes, Hawkish Fed Voices Might Weigh on Pair’s Prospects

Highlights

• EUR/USD rebounds with a 0.05% gain after a 0.67% fall on Tuesday, settling at $1.07269.
• A darkening Eurozone economic horizon may relieve pressure on ECB rate hikes.
• Upcoming FOMC member speeches could impact EUR/USD, especially with potential hawkish tones.

Wednesday Overview

On Wednesday, the EUR/USD gained 0.05%. Following a 0.67% fall on Tuesday, the EUR/USD ended the day at $1.07269. The EUR/USD rose to a high of $1.07488 before falling to a low of $1.07023.

German Industrial Production and Eurozone GDP Numbers in Focus

The German economy is in the spotlight again. Industrial production figures for July will set the tone. Investors expect production to decline by 0.5% in July. However, the latest factory order numbers suggest a more marked decline.

Despite constituting only 20% of its economy, data from the German manufacturing sector continues to impact the EUR/USD due to the declining macroeconomic climate. Lower production could lead to fewer jobs, decreasing consumption, and softer demand-driven inflation.

Later in the session, Eurozone GDP figures for the second quarter will also move the dial. Weaker-than-expected numbers would fuel recessionary jitters. Economists project the Eurozone economy to grow by 0.6% year-over-year versus 1.1% in the previous quarter.

Significantly, the darkening economic outlook should ease pressure on the ECB to raise rates higher.

US Jobless Claims and Fed Speakers

This afternoon, US jobless claims will draw interest. After the higher-than-expected ISM Non-Manufacturing PMIs, steady jobless claims would support a more hawkish Fed. Tight labor market conditions support wage growth. Wage growth dilutes the effect of Fed rate hikes, fueling consumption and demand-driven inflation.

However, FOMC member speeches also need consideration today. FOMC members Harker, Bowman, and Fed Vice Chair Williams are on the calendar to speak. Hawkish comments vis-à-vis interest rates would weigh on the EUR/USD.

Short-Term Forecast:

Economic indicators from the euro area and the US signal diverging economies. Better-than-expected US economic indicators could also fuel monetary policy divergence in favor of the Dollar.

EUR/USD Price Action

Daily Chart

The EUR/USD stayed below the 50-day and 200-day EMAs, sending bearish price signals. A diverging macroeconomic picture between the Euro area and the US also left the EUR/USD below the trend line and $1.07635 resistance level.

Another round of weak numbers from the euro area would bring sub-$1.0650 and the $1.06342 support level into view. However, US labor market numbers and Fed speakers must send more hawkish Fed signals to support a sharp pullback.

A move through the $1.07635 resistance level would give the bulls a run at the trend line. However, numbers from the Eurozone must impress to support a breakout session.

Considering the 14-Daily RSI at 34.49, the EUR/USD can return to sub-$1.0650 before hitting oversold territory.

4-Hourly Chart

The EUR/USD remains below the 200-day and 50-day EMAs, reaffirming the bearish price signals. Notably, the EUR/USD struggles below the trend line and the $1.07635 resistance level. Better-than-expected economic indicators from the euro area would support a breakout from $1.0750 to target the trend line. However, US labor market figures must disappoint to bring the trend line into play.

A slide in German industrial production and weaker-than-expected Eurozone GDP numbers would give the bears a run at the $1.06342 support level.

The 14-4H RSI at 32.21 indicates the EUR/USD has room to reach $1.0650 before entering oversold territory.