EUR/USD Forecast: ECB Financial Stability Review and US Stats in Focus

Highlights

• The EUR/USD declined by 0.27% on Tuesday, ending the session at $1.09108.
• On Wednesday, the ECB Financial Stability Review will garner investor interest.
• US jobless claims and consumer sentiment figures also need consideration.

Tuesday Overview

The EUR/USD declined by 0.27% on Tuesday. Following a 0.29% gain on Monday, the EUR/USD ended the day at $1.09108. The EUR/USD rose to a high of $1.09652 before falling to a low of $1.08999.

ECB Financial Stability Review in Focus

On Wednesday, the ECB Financial Stability Review will garner investor interest. The review will shift investor focus from inflation to risks to financial stability.

The ECB publishes the review twice yearly and could highlight the effects of elevated interest rates on credit conditions. A deteriorating outlook could impact the availability of credit, labor market conditions, and consumption.

Tighter credit conditions for businesses could lead to reduced investment and cost-saving exercises. Companies may reduce staffing levels in a deteriorating macroeconomic environment to maintain profit margins. Weaker labor market conditions would affect consumer confidence and spending. Euro area private consumption contributes over 50% to the euro area economy.

Significantly, a weaker consumer spending outlook could ease pressure on the ECB to maintain a hawkish rate path. A downward trend in consumer spending eases demand-driven inflationary pressures.

US Jobless Claims and Consumer Sentiment in the Spotlight

On Wednesday, US jobless claims and Michigan Consumer Sentiment figures need consideration. An unexpected rise in jobless claims and a downward revision to the preliminary Michigan Consumer Sentiment Index could support bets on a May Fed rate cut.

Weaker labor market conditions and waning consumer sentiment could affect consumer spending. A downward trend in consumer spending would ease demand-driven inflationary pressures and the need for a hawkish rate path.

Notably, a marked increase in jobless claims and a slump in consumer sentiment could reignite fears of a hard landing. US private consumption contributes over 60% to the US economy.

Other stats include durable goods and core durable goods orders. However, barring dire numbers, the report will likely play second fiddle to jobless claims and consumer sentiment.

Short-Term Forecast:

Market sentiment toward the euro area and US economies will continue influencing central bank policy bets. A deteriorating US macroeconomic environment could continue supporting the upward EUR/USD trajectory. Prelim private sector PMIs for November could be pivotal to near-term trends.

EUR/USD Price Action

Daily Chart

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

A EUR/USD break above the $1.09294 resistance level would give the bulls a run at the $1.10720 resistance level.

The ECB Financial Stability Review and US economic indicators are focal points.

However, failure to move through the $1.09294 resistance level would leave the $1.07838 support level in view.

The 14-period Daily RSI, 67.83, suggests a EUR/USD move through the $1.09294 resistance level before entering overbought territory.

4-Hour Chart

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

A EUR/USD break above the $1.09294 resistance level would support a move to the $1.10720 resistance level.

However, a EUR/USD drop below the $1.09 handle would bring the 50-day EMA into play.

The 14-period RSI on the 4-hour chart, 58.35, indicates a EUR/USD move to $1.10 before entering overbought territory.