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EUR/USD Forecast: Eurozone Inflation Dictates Direction Amid Rising EUR/USD Momentum

By:
Bob Mason
Published: Sep 19, 2023, 06:27 GMT+00:00

Eurozone inflation competes with US housing insights and FOMC meeting anticipation.

EUR/USD Forecast

In this article:

Highlights

  • EUR/USD sawmomentum, closing Monday at $1.06915 after hitting a low of $1.06545 earlier.
  • Investors eye finalized Eurozone inflation figures; EUR/USD shows vulnerability to softer projections.
  • The bearish near-term EUR/USD trend leans heavily on the Fed; hawkish stance could push sub-$1.06.

Monday Overview

On Monday, the EUR/USD rose by 0.30%. Following a 0.16% gain on Friday, the EUR/USD ended the day at $1.06915. The EUR/USD fell to a low of $1.06545 before rising to a high of $1.06986.

Eurozone Inflation to Pre-Fed Direction

Later today, Finalized Eurozone inflation figures for August will draw investor interest. Market sensitivity to hawkish ECB member commentary was evident on Monday, exposing the EUR/USD to softer-than-expected inflation numbers.

According to prelim figures, the annual core inflation rate softened from 5.5% to 5.3% in August. However, the annual inflation rate held steady at 5.5%. An upward revision to core inflation would support hawkish ECB comments and appetite for the EUR.

Given the focus on inflation, investors should consider ECB Executive Board member commentary. Board member Frank Elderson is on the calendar to speak today.

US Housing Sector Takes Center Stage as FOMC Meeting Gets Underway

US building permits and housing starts will be in focus early in the US session. However, the FOMC meeting also gets underway today, leaving investors to second guess the Fed interest rate trajectory.

Barring a significant decline in housing sector data, investors will likely overlook these figures. The housing sector is unlikely to influence the Fed and FOMC member projections. However, investors should remain wary, as a deterioration in the housing sector could signal a hard landing for the US economy.

A deteriorating housing sector would weigh on consumer confidence and spending. US private consumption contributes more than 65% to the US economy. A pullback in spending would ease demand-driven inflationary pressures and rein in expectations of further Fed rate hikes.

Short-Term Forecast:

While Eurozone inflation numbers and ECB commentary will influence buyer appetite, the Fed remains the key driver. A hawkish Fed would support the bearish near-term EUR/USD trend and a return to sub-$1.06.

EUR/USD Price Action

Daily Chart

The EUR/USD remained below the 50-day and 200-day EMAs, reaffirming bearish price signals. A break below the $1.06342 support level would give the bears a run at $1.06.

However, the Eurozone inflation figures should be softer than prelim to support a EUR/USD pullback.

A EUR/USD return to $1.07 would signal a move toward the $1.07635 resistance level. The EUR/USD needs hawkish central bank speeches and upward revisions to prelim inflation numbers to support a breakout session.

The 14-period Daily RSI at 37.79 indicates a EUR/USD break below the $1.06342 support level before entering oversold territory.

EUR/USD Daily Chart sends bearish price signals.
EURUSD 190923 Daily Chart

4-Hour Chart

The EUR/USD sits below the 50-day and 200-day EMAs, reaffirming the bearish price signals. A EUR/USD break above the 50-day EMA would support a move toward the $1.07635 resistance level.

However, failure to break above the 50-day EMA would support a EUR/USD fall toward the $1.06342 support level.

The 14-period 4-Hourly RSI at 47.59 indicates a EUR/USD break below the $1.06342 support level before entering oversold territory.

4-Hourly Chart affirms bearish price signals.
EURUSD 190923 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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