EUR/USD Forecast: ECB Chief Economist Philip Lane To Test Bets on ECB Rate Cuts

Highlights

• The EUR/USD declined by 0.38% on Wednesday, ending the session at $1.09392.
• On Thursday, French business confidence numbers and ECB commentary will draw investor interest.
• Later in the session, US manufacturing sector data, jobless claims, and Q3 GDP numbers will influence buyer demand for the EUR/USD.

Wednesday Overview

The EUR/USD declined by 0.38% on Wednesday. After a 0.52% gain on Tuesday, the EUR/USD ended the day at $1.09392. The EUR/USD rose to a high of $1.09835 before falling to a low of $1.09296.

French Business Confidence and ECB Chief Economist Lane in Focus

On Thursday, French business confidence figures will draw investor interest. A larger-than-expected decline in confidence could impact buyer demand for the EUR/USD. Waning business confidence could affect investment and job creation.

A deteriorating French labor market would affect consumer confidence and consumer spending. Downward trends in consumer spending could dampen demand-driven inflation. However, weaker consumer spending would also impact the French economy. French private consumption contributes over 50% to the economy.

Economists forecast the French Business Confidence Index to slip from 99 to 98 points in December.

However, investors must also monitor ECB commentary. ECB Chief Economist Philip Lane is on the calendar to speak on Thursday. Investors must consider comments relating to inflation, the economic outlook, and interest rates.

US GDP, Philly Fed Manufacturing, and Jobless Claims in Focus

On Thursday, Q3 GDP, Philly Fed Manufacturing, and jobless claims figures will garner investor interest. Barring a marked revision to preliminary GDP numbers, the Philly Fed Manufacturing and jobless claims may influence sentiment toward the Fed rate path.

Tight labor market conditions support wage growth and disposable income. An upward trend in disposable income could fuel consumer spending and demand-driven inflationary pressures. The net effect would be a higher-for-longer interest rate environment. Elevated interest rates would curb consumer spending and dampen inflation.

However, investors will likely consider the Philly Fed Manufacturing Index numbers. A larger-than-expected increase would support bets on a soft landing and appetite for the US dollar. The US manufacturing sector accounts for less than 30% of the US economy. Sector data has a limited influence on the Fed rate path.

Economists forecast the Philly Fed Manufacturing Index to rise from -5.9 to -3 in December. Significantly, economists expect initial jobless claims to increase from 202k to 215k in the week ending December 16.

Short-Term Forecast:

Near-term trends for the EUR/USD will depend on US inflation numbers (Fri) and ECB commentary. An ECB commitment to keep interest rates at current levels and softer US inflation numbers could tilt monetary policy divergence to the EUR.

EUR/USD Price Action

Daily Chart

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

A EUR/USD move to the $1.10 handle would give the bulls a run at the $1.10720 resistance level.

ECB commentary and the US economic calendar will influence market risk sentiment on Thursday.

However, a EUR/USD break below the $1.09294 support level would support a fall to the 50-day EMA.

The 14-period Daily RSI, 58.12, suggests a EUR/USD return to the $1.10 handle before entering overbought territory.

4-Hour Chart

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

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

However, a fall through the $1.09294 support level would give the bears a run at the 50-day EMA.

The 14-period RSI on the 4-hour chart, 55.97, indicates a EUR/USD test of the $1.10720 resistance level before entering overbought territory.