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EUR/USD Forecast: Euro Area Stats and the ADP Numbers to Dictate Trends

By:
Bob Mason

US labor market data, specifically ADP Employment Change, holds potential to sway Q1 2024 Fed rate expectations.

EUR/USD Forecast

In this article:

Highlights

  • The EUR/USD declined by 0.37% on Tuesday, ending the session at $1.07960.
  • ECB Executive Board Member Isabel Schnabel sent the EUR/USD deep into negative territory.
  • On Wednesday, German factory orders, Eurozone retail sales, and ADP Employment Change will be focal points.

Tuesday Overview

The EUR/USD declined by 0.37% on Tuesday. Following a 0.40% loss on Monday, the EUR/USD ended the day at $1.07960. The EUR/USD rose to a high of $1.08475 before falling to a low of $1.07781.

German Factory Orders and Eurozone Retail Sales in the Spotlight

On Wednesday, German factory orders and Eurozone retail sales figures will garner investor interest. A pickup in German factory orders could provide early support. However, the manufacturing sector accounts for less than 40% of the German economy, limiting the impact on ECB policy goals.

Economists forecast factory orders to increase by 0.2% in October. In September, orders were up by 0.2%.

Eurozone retail sales could drive buyer demand for the EUR/USD. A pickup in consumer spending could signal an improving consumer confidence backdrop. Improving consumer confidence could fuel consumer spending and demand-driven inflation, forcing the ECB to keep rates higher for longer.

Significantly, private consumption contributes over 50% to the economy. An upward trend would also allay fears of a Eurozone recession. Economists forecast retail sales to increase by 0.2% in October after falling 0.3% in September.

Beyond the numbers, investors must monitor ECB commentary. Dovish comments could deliver further losses. On Tuesday, ECB Executive Board member Isabel Schnabel, previously an ECB hawk, reportedly said,

“The most recent inflation number has made a further rate increase rather unlikely.”

US Labor Market in Focus

On Wednesday, ADP Employment Change figures also warrant investor attention. Weaker-than-expected numbers could raise bets on a Q1 2024 Fed rate cut. Deteriorating labor market conditions could impact wage growth and consumer confidence. The net effect could be a pullback in consumer spending, dampening demand-driven inflationary pressures.

A softer inflation outlook would ease pressure on the Fed to maintain a hawkish rate path. A less hawkish rate path would dampen demand for the US dollar.

Economists forecast the ADP to report a 130k increase in employment in November. The ADP reported a 113k increase in October.

Short-Term Forecast:

Near-term EUR/USD trends will hinge on central bank chatter and US labor market stats. Weaker labor market numbers could fuel bets on a Q1 2024 Fed rate hike. In contrast, an improving euro area economy could allow the ECB to maintain current interest rate levels for longer.

EUR/USD Price Action

Daily Chart

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

A EUR/USD return to the $1.08500 handle would support a move to the $1.09294 resistance level.

Euro area economic indicators, ECB commentary, and US labor market numbers will influence buyer demand.

However, a EUR/USD break below the $1.07838 support level and the 50-day EMA would give the bears a run at the 200-day EMA. Buying pressure may intensify at the $1.07838 support level. The 50-day EMA is confluent with the support level.

The 14-period Daily RSI, 48.25, suggests a EUR/USD fall below the 200-day EMA before entering oversold territory.

EUR/USD Daily Chart sends bullish price signals.
EURUSD 061223 Daily Chart

4-Hour Chart

The EUR/USD remained below the 50-day EMA while hovering above the 200-day EMA, sending bearish near-term but bullish longer-term price signals.

A EUR/USD return to the $1.08500 handle would support a move to the 50-day EMA.

However, a EUR/USD break below the 200-day EMA would bring the $1.07838 support level and $1.07500 handle into play.

The 14-period RSI on the 4-hour chart, 30.35, shows the EUR/USD on the border of oversold territory. Buying pressure could intensify at the $1.07838 support level.

4-Hourly Chart sends bearish near-term price signals.
EURUSD 061223 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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