EUR/USD Forecast: Analyzing the Path Amidst Eurozone and US Inflation Data

Highlights

• The EUR/USD fell by 0.21% on Wednesday, ending the session at $1.09692.
• Softer German inflation and US GDP numbers left the EUR/USD in negative territory.
• On Thursday, Eurozone and US inflation are the focal points.

Wednesday Overview

The EUR/USD declined by 0.21% on Wednesday. After a 0.36% gain on Tuesday, the EUR/USD ended the day at $1.09692. The EUR/USD rose to a high of $1.10171 before falling to a low of $1.09600.

Eurozone Inflation and ECB President Christine Lagarde in the Spotlight

On Thursday, Eurozone inflation numbers for November warrant investor consideration. Softer-than-expected inflation figures could raise bets on an H1 2024 ECB rate cut. Numbers from Germany on Wednesday suggest softer-than-expected figures.

However, German retail sales and unemployment numbers from Germany and the Eurozone also need consideration. A pickup in consumer spending and tighter labor market conditions could temper bets on a less hawkish ECB rate path.

Tighter labor market conditions support wage growth and disposable income. An upward trend in disposable income could fuel consumer spending and demand-driven inflation. ECB President Christine Lagarde recently warned of a possible uptick in inflation. However, the numbers will likely play second fiddle to the Eurozone inflation figures.

Other stats include French GDP and inflation numbers. Softer French inflation numbers could kick-start a EUR/USD descent.

Investors must also monitor ECB commentary. ECB President Christine Lagarde is on the calendar to speak. A deviation from a commitment to keep rates higher for longer would move the dial.

US Inflation in the Spotlight

On Thursday, US inflation and personal income/spending numbers will garner investor interest. Softer-than-expected inflation figures and modest increases in income and spending would support bets on an H1 2024 rate cut.

Economists forecast the Core PCE Price Index to increase by 3.5% year-over-year in October vs. 3.7% in September.

Notably, modest increases in income and spending could ease demand-driven inflation, allowing the Fed to take a less hawkish rate path.

Other stats include US jobless claims, Chicago PMI, and pending home sales. However, these will likely play second fiddle to the inflation and personal income/spending numbers.

With inflation in the spotlight, Fed comments need monitoring. Fed Vice Chair John Williams is on the calendar to speak.

Short-Term Forecast:

Near-term EUR/USD trends remain hinged on the euro area and US inflation numbers. Softer-than-expected euro area inflation and sticky US inflation numbers could tilt monetary policy divergence toward the US dollar. However, Fed Chair Powell may have the final say on Friday.

EUR/USD Price Action

Daily Chart

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

A EUR/USD return to $1.10 would support a move to the $1.10720 resistance level.

US and Eurozone inflation numbers and central bank speakers are focal points.

However, a EUR/USD fall through the $1.09294 support level would give the bears a run at the $1.08500 handle.

The 14-period Daily RSI, 68.43, suggests a EUR/USD return to $1.10 before entering overbought territory.

4-Hour Chart

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

A EUR/USD move to $1.10 would bring the $1.10720 resistance level into play.

However, a EUR/USD fall through the $1.09294 support level and the 50-day EMA would bring the $1.08500 handle into play. Buying pressure could intensify at $1.09290. The 50-day EMA is confluent with the $1.09294 resistance level.

The 14-period RSI on the 4-hour chart, 56.75, suggests a EUR/USD move to the $1.10720 resistance level before entering overbought territory.