EUR/USD Forecast: Eurozone Trade Surplus Mirage Amid Global Demand Woes

Highlights

• EUR/USD fell 0.20%, closing at $1.08792 after a volatile Wednesday trading session.
• The Eurozone economy is under a microscope amidst global demand woes.
• US jobless claims data may contest a softer labor market theory.

Overview

The EUR/USD fell by 0.20% to wrap up the day at $1.08792 on Wednesday. During a bullish morning session, the EUR/USD rose to a high of $1.09345 before sliding to a late-session low of $1.08714.

Today, the Eurozone economy remains in the spotlight. Eurozone trade data for July will draw interest amidst the weak global demand environment and China’s economic woes.

Economists forecast the Eurozone trade balance to rise from a €0.3 billion deficit to a €18.3 billion surplus. However, the devil will be the details, with a fall in exports being a bearish price scenario.

An increased contribution from the service sector to the economy has watered down the influence of trade data on the EUR/USD. Weak trade terms numbers would align with the latest private sector PMIs.

With the European economic calendar on the busier side, investors should track ECB chatter. However, no ECB Executive Board Members are on the calendar to speak today, leaving commentary with the media to move the dial. Dovish speeches would further pressure the EUR/USD.

US Jobless Claims and Philly Fed Manufacturing in Focus

Philly Fed Manufacturing Index numbers and US jobless claims will also provide direction. A fall in jobless claims would question the theory of a softer US labor market and support hawkish Fed bets.

We expect the jobless claims to trump the Philly Fed Manufacturing data.

It is worth noting that the manufacturing sector numbers are unlikely to influence the Fed. The manufacturing sector accounts for less than 30% of the US economy and is unlikely to dictate sentiment toward Fed monetary policy. In contrast, tight labor market conditions support further Fed rate hikes to curb demand-driven inflation.

EUR/USD Price Action

Daily Chart

The Daily Chart showed the EUR/USD held above the lower level of the 1.0900 – $1.0850 support band. After the bearish Wednesday session, the EUR/USD remained below the 50-day EMA while holding above the 200-day EMA, sending bearish near-term but bullish longer-term price signals.

A EUR/USD move through the 50-day EMA would give the bulls a run at the $1.1015 – $1.1060 resistance band. However, failure to move through the 50-day EMA would leave the lower level of the $1.0900 – 1.0850 support band and sub-$1.08 in play.

Looking at the 14-Daily RSI, the 36.36 reading reflects bearish sentiment. The RSI aligns with the 50-day EMA, signaling a fall through the $1.0900 – 1.0850 support band to target $1.08.

4-Hourly Chart

Looking at the 4-Hourly Chart, the EUR/USD sits above the lower level of the $1.0900 – $1.0850 support band. The EUR/USD remains below the 50-day and 200-day EMAs, sending bearish near and longer-term price signals.

The 14-4H RSI at 32.63 reflects bearish sentiment, with selling pressure outweighing buying pressure. Significantly, the RSI suggests further losses and a fall through the $1.0900 – $1.0850 support band to target $1.08.

Price action today hinges on the euro area and US economic indicators.