EUR/USD Forecast: Eurozone Trade and US Retail Sales in the Spotlight

Highlights

• The EUR/USD rallied 1.68% on Tuesday, ending the session at $1.08787.
• ZEW Economic Sentiment numbers for Germany and the Eurozone and the US CPI Report fueled demand for the EUR/USD.
• On Wednesday, Eurozone trade data and US retail sales figures will be in focus.

Tuesday Overview

The EUR/USD rallied 1.68% on Tuesday. Following a 0.13% gain on Monday, the EUR/USD ended the day at $1.08787. The EUR/USD fell to a low of $1.06928 before reaching a high of $1.08874.

Eurozone Trade and Industrial Production in Focus

On Wednesday, trade data and industrial production figures for the Eurozone will garner investor interest. Trade data will likely have more influence on the EUR/USD. The Eurozone manufacturing sector accounts for less than 30% of the economy.

Economists forecast the Eurozone trade surplus to widen from €6.7 billion to €22.3 billion in September. Beyond the headline figure, exports and trade terms with trade partners also need consideration. A fall in imports and exports would reflect a weak demand environment.

US Retail Sales in the Spotlight

US retail sales figures for October will warrant investor attention on Wednesday. A larger-than-expected fall in US retail sales could support bets on the Fed ending its rate hike cycle.

Downward trends in consumer spending ease demand-driven inflationary pressures and the need for a hawkish Fed rate path. However, a material decline in sales could reignite fears of a hard landing. US private consumption contributes over 60% to the US economy.

Economists forecast US retail sales to fall by 0.3% after rising by 0.7% in September.

While retail sales will be the focal point, producer prices also need consideration. Softer producer prices could signal a weak demand environment. Producers cut prices to remain competitive in low-demand conditions. Producer prices also influence consumer price trends.

Economists forecast producer prices to increase 0.1% in October following a 0.5% rise in September.

Short-Term Forecast:

Near-term EUR/USD trends could hinge on US retail sales figures before Eurozone inflation numbers on Friday. A slump in US retail sales could raise bets on an H1 2024 Fed rate cut, tilting monetary policy divergence toward the EUR.

EUR/USD Price Action

Daily Chart

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

A EUR/USD return to $1.09 would give the bulls a run at the $1.09294 resistance level.

Eurozone trade and US retail sales figures will influence investor appetite for the EUR/USD.

A slide in US retail sales and a pickup in Eurozone exports would support a positive session.

However, an unexpected jump in US retail sales could test the theory of the Fed ending the rate hike cycle.

A break below the $1.07838 support level would bring the EMAs into play.

The 14-period Daily RSI, 70.06, shows the EUR/USD in overbought territory. Selling pressure could intensify at $1.09.

4-Hour Chart

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

A EUR/USD move to $1.09 would bring the $1.09294 resistance level into play.

However, a EUR/USD drop below $1.08 could support a fall to the $1.07838 support level.

The 14-period RSI on the 4-hour chart, 81.49, shows the EUR/USD in overbought territory. Selling pressure could intensify at $1.09 without a favorable market catalyst.