EUR/USD Forecast – Could Spike Higher on Lower-than-Expected US Producer Price Data

The Euro is edging higher against the U.S. Dollar for a third straight session on Friday, with investors cautious as they weighted the outlook for U.S. Federal Reserve policy against the chances that higher interest rates could lead to a recession.

The Fed and the European Central Bank (ECB) are all set to announce interest rate decisions next week as policy markers continue to tap the brakes on economic growth through higher rates to thwart stubbornly high inflation.

Bullish traders and investors will be looking for any signs that the Fed is getting ready to pause its hikes.

At 07:49 GMT, the EUR/USD is trading 1.0573, up 0.0018 or +0.17%. On Thursday, the Invesco CurrencyShares Euro Trust ETF (FXE) settled at $97.42, up $0.45 or +0.46%.

Trader’s Eyeing Friday’s U.S. PPI Report

Investors are anticipating Friday’s U.S. producer price (PPI) data for November, while U.S. monthly consumer inflation data is due next week, one day before the Fed’s policy meeting on Dec. 14. Inflation data could be pivotal in setting longer-term expectations for monetary policy.

Monthly U.S. PPI and Core PPI are expected to show a rise of 0.2. A cooler-than-expected reading will be bullish for the EUR/USD. Traders are also looking for a favorable figure in Friday’s Preliminary University of Michigan Inflation Expectations report.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 1.0595 will signal a resumption of the uptrend. A move through 1.0443 will change the main trend to down.

The EUR/USD is currently straddling a key Fibonacci level at 1.0560. The nearest support is a minor pivot at 1.0442, followed by a 50% level at 1.0366.

Daily Swing Chart Technical Forecast

Trader reaction to the long-term Fib level at 1.0560 is likely to determine the direction of the EUR/USD on Friday.

Bullish Scenario

A sustained move over 1.0560 will indicate the presence of buyers. If this creates enough upside momentum then look for a surge into the June 27 main top at 1.0615. Taking out this level will indicate the buying is getting stronger. This could trigger an acceleration into the June 9 main top at 1.0774.

Bearish Scenario

A sustained move under 1.0560 will signal the presence of sellers. This could trigger a break into the support cluster at 1.0443 – 1.0442. If the latter fails, the selling could possibly extend into 1.0366.