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EUR/USD Forecast: ECB Hawkishness Meets US Consumer Confidence

By:
Bob Mason
Updated: Sep 26, 2023, 05:21 GMT+00:00

As EUR/USD navigates through economic intricacies, the analysis unveils the pivotal role of ECB policies and US consumer sentiments in shaping forecasts.

EUR/USD Forecast

In this article:

Highlights

  • The EUR/USD marked notable fluctuations, settling with a 0.49% decline at $1.05930 on Monday.
  • ECB’s Lagarde endorses an extended high-interest rate approach, eyeing inflation control.
  • ECB Chief Economist Philip Lane’s insights at an upcoming ECB conference will shape the EUR’s trajectory.

Monday Overview

The EUR/USD experienced volatility on Monday, touching a high of $1.06556 and a low of $1.05751, eventually closing the day with a 0.49% fall at $1.05930,

ECB Chief Economist Philip Lane to Guide the EUR

ECB commentary has been hawkish despite concerns about a euro area recession. On Monday, ECB President Lagarde supported the higher-for-longer interest rate path to tame inflation.

The increasing risk of a euro area recession, fueled by the ECB, leaves the EUR/USD on the back foot.

ECB Chief Economist Philip Lane will guide the EUR. Lane speaks at a Joint European Central Bank – Banque de France – Centre for Economic Policy Research Conference.

The EUR/USD will be sensitive to economic and inflation outlooks, even though investors could stomach the higher-for-longer mantra. There is also the threat of the Chief Economist supporting further rate hikes.

However, German, French, and Eurozone inflation figures will be in focus this week. A marked softening in inflation pressures could ease pressure on the ECB to maintain interest rates for higher and avoid a hard landing.

US Consumer Confidence to Dictate the Pre-Inflation Path

Later today, the CB Consumer Confidence Index will be in focus. Economists forecast the Index to fall modestly from 106.1 to 105.9. Steady consumer confidence levels would support consumption and demand-driven inflation. While a positive consumption outlook is bullish for the economy, the Fed may have to push interest rates higher.

Higher interest rates reduce disposable income and spending, thereby easing demand-driven inflationary pressures.

With consumer confidence in focus, FOMC member commentary also needs consideration. Dovish FOMC comments about the economy and monetary policy would fuel buyer appetite for the EUR/USD.

Short-Term Forecast:

The US dollar remains in the driving seat. However, a slump in consumer confidence ahead of the euro area and US inflation figures could fuel fears of a US hard landing. A less hawkish outlook toward the US economy would narrow the monetary policy and macroeconomic divergence toward the EUR.

EUR/USD Price Action

Daily Chart

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

Better-than-expected US consumer confidence figures would support a EUR/USD fall to the $1.05230 support level. However, ECB Chief Economist Philip Lane must talk about a gloomy economic outlook and the need for higher rates to signal a EUR/USD sell-off.

If EUR/USD returns to $1.06, it would give the bulls a run at the $1.06342 resistance level.

The 14-period Daily RSI at 30.06 shows the EUR/USD on the oversold boundary.

EUR/USD Daily Chart sends bearish price signals.
EURUSD 260923 Daily Chart

4-Hour Chart

The EUR/USD remains below the 50-day and 200-day EMAs, reaffirming the bearish price signals. A fall to $1.0550 would support a EUR/USD fall to the $1.05230 support level.

However, a return to $1.06 would give the bulls a run at the $1.06342 resistance level.

The 14-period 4-Hourly RSI at 32.34 supports a EUR/USD fall to $1.0550 before entering oversold territory.

4-Hourly Chart affirms bearish price signals.
EURUSD 260923 4 Hourly Chart

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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