EUR/USD Forecast: Bears Eye Sub-$1.05 on Dovish ECB Bets and US GDP Numbers

Highlights

• The EUR/USD declined by 0.22% on Wednesday, ending the session at $1.05659.
• On Thursday, the ECB monetary policy decision and press conference will be the main event.
• However, US GDP numbers for Q3 could fuel Fed rate hike bets, exposing the EUR/USD to the risk of a drop below $1.05.

Wednesday Overview

On Wednesday, the EUR/USD fell by 0.22%. Following a 0.74% loss on Tuesday, the EUR/USD ended the day at $1.05659. The EUR/USD rose to a high of $1.06067 before falling to a low of $1.05653.

The ECB and ECB President Christine Lagarde in the Spotlight

On Thursday, the ECB will deliver its October monetary policy decision. Economists expect the ECB to leave interest rates at 4.50% and the deposit facility rate at 4.00%

Deviation from expectations would materially influence buyer appetite for the EUR. Sticky inflation continues to leave interest rate hikes on the table. Higher inflation raises borrowing costs, impacting disposable income and consumption. A downward trend in consumption would ease demand-driven inflationary pressures.

If the ECB leaves rates unchanged, the market focus will turn to the ECB press conference. Forward guidance interest rates and the ECB’s view on the economy and inflation need consideration. A dovish hold on interest rates would impact buyer appetite for the EUR.

US GDP Numbers to Set the Stage for Inflation Figures on Friday

Later today, the US economy will be in the spotlight. Q3 GDP numbers will garner investor interest. A hotter-than-expected US economy will likely fuel bets on a December Fed rate hike. Economists forecast the US economy to expand by 4.3% vs. 2.1% in the previous quarter.

Higher interest rates would raise borrowing costs and impact disposable income. A fall in disposable income could force consumers to curb spending, easing demand-driven inflationary pressures.

US Jobless Claims and Core Durable Goods Orders are also in focus. However, the numbers will likely play second fiddle to the GDP Report.

Short-Term Forecast:

Recent PMI figures tilt the monetary policy divergence scales toward the US dollar. However, the ECB press conference and US GDP and inflation numbers will dictate the near-term trends for the EUR/USD.

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 move through the $1.06342 resistance level would give the bulls a run at the 50-day EMA and $1.07. Softer-than-expected US GDP numbers and a hawkish ECB would drive demand for the EUR.

However, a hotter-than-expected US economy and a dovish ECB hold on rates would weigh on buyer appetite for the EUR.

A EUR/USD drop below the trend line and the $1.05173 support level would bring sub-$1.05 into play.

The 14-period Daily RSI, 44.51, indicates a EUR/USD drop below the trend line and $1.05173 support level before entering oversold territory.

4-Hour Chart

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

A EUR/USD break above the 50-day EMA would support a move to the 200-day EMA and $1.06342 resistance level.

However, a fall through the trend line and $1.05173 support level would bring sub-$1.05 into view.

The 14-period RSI on the 4-hour chart, 37.10, suggests a EUR/USD break below the trend line before entering oversold territory.