EUR/USD Forecast: German Business Sentiment and the ECB Chief Economist in the Spotlight

Highlights

• The EUR/USD slid by 0.89% on Friday, ending the session at $1.08937.
• Diverging Services PMIs fueled the buyer appetite for the US dollar.
• On Monday, German business sentiment, the ECB, and the US housing sector are focal points.

Friday Overview

The EUR/USD slid by 0.89% on Friday. After a 1.09% rally on Thursday, the EUR/USD ended the day at $1.08937. The EUR/USD rose to a high of $1.10037 before falling to a low of $1.08884.

German Business Sentiment and ECB Chief Economist Philip Lane in Focus

On Monday, the German Ifo Business Climate Index will garner investor attention. Economists forecast the Ifo Business Climate Index to increase from 87.3 to 87.8 in December.

A pickup in business confidence could signal upswings in investment and job creation. An improving macroeconomic environment and labor market could fuel consumer spending and demand-driven inflation. The net effect would align with the higher-for-longer ECB rate path.

However, beyond the headline figures, the sub-components also warrant consideration. The German services sector accounts for over 60% of the economy. An fall in sentiment across the services sector could overshadow improving views across the manufacturing, trade, and construction sectors.

ECB member commentary also needs monitoring. ECB Chief Economist Philip Lane and Executive Board member Isabel Schnabel are on the calendar to speak. Philip Lane could have more impact. Views on the economy, inflation, and the ECB rate path would move the dial.

US Housing Sector in Focus

On Monday, US housing sector data will draw investor interest. The US housing sector remains a litmus test of the US economy. Improving housing sector conditions could support consumer confidence and spending.

An upward trend in consumer spending could fuel demand-driven inflation. A build-up in consumer price inflation could force the Fed to reconsider its interest rate trajectory. A more hawkish trajectory would curb spending and dampen inflationary pressures.

Economists forecast the NAHB Housing Market Index to increase from 36 to 38 in December.

Short-Term Forecast:

Near-term EUR/USD trends will likely hinge on consumer confidence, spending, and inflation figures. A pickup in US consumer confidence, consumer spending, and inflation could tilt monetary divergence toward the US dollar.

EUR/USD Price Action

Daily Chart

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

A EUR/USD break above the $1.09294 resistance level would support a move to the Thursday high of $1.10093.

The ECB, German business sentiment, and the US housing market will be focal points.

However, a EUR/USD drop below the $1.08500 handle would give the bears a run at the $1.07838 support level.

The 14-period Daily RSI, 56.79, indicates a EUR/USD return to the Thursday high of $1.10093 before entering overbought territory.

4-Hour Chart

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

A EUR/USD move through the $1.09294 resistance level would bring the Thursday high of $1.10093 into play.

However, a fall through the 50-day EMA would give the bears a run at the 200-day EMA and the $1.07838 support level.

The 14-period RSI on the 4-hour chart, 56.53, suggests a EUR/USD return to the Thursday high of $1.10093 before entering overbought territory.