EUR/USD Forecast: Eurozone Inflation, the ECB, and the Middle East in Focus

Highlights

• The EUR/USD gained 0.16% on Tuesday, ending the session at $1.05771.
• Eurozone inflation and ECB responses could prove pivotal before the US session.
• However, Fed speeches and the Joe Biden visit to the Middle East also need monitoring.

Tuesday Overview

On Tuesday, the EUR/USD rose by 0.16%. Following a 0.51% gain on Monday, the EUR/USD ended the day at $1.05771. The EUR/USD fell to a low of $1.05328 before rising to a high of $1.05948.

Eurozone Inflation and the ECB in the Spotlight

Finalized Eurozone inflation figures for September will garner investor interest on Wednesday. The ECB remains mindful of elevated inflation and the adverse effects on the Eurozone economy.

Upward revisions to prelim figures would test the market bets on the ECB hitting the brakes on interest rate hikes. The annual core inflation rate softened from 5.3% to 4.5% in September, according to prelim numbers.

With inflation in the spotlight, ECB commentary also needs consideration. ECB President Christine Lagarde is on the calendar to speak. References to the inflation numbers and monetary policy will influence the appetite for the EUR.

Beyond the economic calendar, investors must monitor news updates from the Middle East throughout the day. The Joe Biden visit will be a focal point.

Fed Speeches, the Middle East, and President Joe Biden in Focus

Later today, the US housing sector will be in focus. A slump in housing sector numbers may raise concerns about the US macroeconomic environment. The housing sector is a litmus test for the US economy. Deteriorating housing market conditions would impact on consumer confidence and consumer spending.

While the US housing sector contributes less than 20% to the US economy, US private consumption contributes over 65% to the US economy. A slump in the housing market would indirectly impact the US economy.

With the housing sector in the spotlight, FOMC member speeches warrant consideration. FOMC Members John Williams, Christopher Waller, Michelle Bowman, and Patrick Harker are on the calendar to speak. Reaction to the US retail sales figures and views on interest rate hikes will influence the buying appetite for the US dollar.

Beyond the economic calendar, the Middle East conflict and Joe Biden visit will need monitoring. Crude oil prices will reflect market views on the Biden visit and any threat of an escalation involving other Middle Eastern nations.

Short-Term Forecast:

Despite recent gains, the EUR/USD remains at risk of a reversal. The US macroeconomic environment remains robust, supporting a more hawkish Fed policy outlook. News updates from the Middle East will also influence near-term trends.

EUR/USD Price Action

Daily Chart

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

A EUR/USD fall through the $1.05230 support level would give the bears a run at $1.0450 and the $1.03922 support level. Hawkish Fed comments and an escalation in the Middle East would affect the appetite for the EUR/USD.

On the other hand, easing geopolitical tensions and hotter-than-expected Eurozone inflation numbers would support a run at the $1.06342 resistance level.

The 14-period Daily RSI, 46.55, supports a EUR/USD fall through the $1.05230 support level before entering oversold territory.

4-Hour Chart

The EUR/USD holds above the 50-day EMA while hovering below the 200-day EMA, sending bullish near-term but bearish longer-term price signals. A EUR/USD return to $1.06 would give the bulls a run at the $1.06342 resistance level and 200-day EMA.

Selling pressure will likely intensify at the $1.06342 resistance level. The 200-day EMA is confluent with the resistance level,

However, a break below the 50-day EMA would support a move to the $1.05230 support level.

The 14-period RSI on the 4-hour chart, 56.16, suggests a EUR/USD move to the $1.06342 resistance level and 200-day EMA before entering overbought territory.