EUR/USD Forecast: German Unemployment and Eurozone PMIs to Shape Sentiment Pre-US Session

Highlights

• The EUR/USD slipped by 0.04% on Wednesday, ending the session at $1.05698.
• On Thursday, German unemployment and euro area manufacturing PMIs will influence the appetite for the EUR.
• US labor market numbers will also warrant consideration.

Wednesday Overview

The EUR/USD slipped by 0.04%. Following a 0.38% loss on Tuesday, the EUR/USD ended the day at $1.05698. The EUR/USD fell to a low of $1.05165 before rising to a high of $1.05806.

German Unemployment and Euro Area Manufacturing in Focus

On Thursday, German unemployment figures for October will kickstart the European session. Weaker labor market conditions could impact consumer confidence and consumption. German private consumption contributes over 50% to the German economy. Weaker demand would affect German growth prospects.

Economists forecast unemployment to rise by 15k and for the unemployment rate to increase from 5.7% to 5.8%.

Manufacturing PMI figures for October also need attention. The Manufacturing PMIs for Italy and the Eurozone will have more influence. However, investors should consider revisions to the German and French PMIs. According to the preliminary survey, the Eurozone Manufacturing PMI fell from 43.4 to 43.0 in October.

The euro area manufacturing sector contributes less than 30% to the economy. However, investors and the EUR remain sensitive to weak economic indicators, with the Eurozone likely entering a recession.

The US Labor Market in Focus Post-Fed

On Thursday, the US labor market will be in focus again. Initial jobless claims, unit labor costs, and nonfarm productivity need investor attention.

Steady labor market conditions would put more emphasis on the unit labor cost figures. A larger-than-expected rise in unit labor costs could signal a pickup in inflationary pressure.

Firms pass on higher staffing costs to consumers, pressuring the Fed to take a more hawkish rate path to impact borrowing costs. Higher borrowing costs force firms to cut costs to maintain margins. Staffing levels and wages would be an area of focus for firms undergoing cost-cutting exercises.

Other stats include US factory orders, which will likely play second fiddle to the labor market reports.

Short-Term Forecast:

A deteriorating macroeconomic environment across the euro area could leave the EUR/USD under pressure. However, the US Jobs Report must reflect steady wage growth and labor market conditions. Tight US labor market conditions would leave monetary policy divergence tilting in favor of the US dollar.

EUR/USD Price Action

Daily Chart

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

A EUR/USD move through the $1.06342 resistance level and 50-day EMA would give the bulls a run at the 200-day EMA. US labor market data and the euro area manufacturing sector will be focal points on Thursday.

However, a EUR/USD break below the $1.05173 support level would support a move to the trend line.

The 14-period Daily RSI, 50.33, suggests a EUR/USD break above the 50-day EMA before entering overbought territory.

4-Hour Chart

The EUR/USD sits above the 50-day EMA while remaining below the 200-day EMA, sending bullish near-term but bearish longer-term price signals.

A EUR/USD break above the 200-day EMA would bring the $1.06342 resistance level into play.

However, a drop below the 50-day EMA would bring $1.05500 and the $1.05173 support level into play.

The 14-period RSI on the 4-hour chart, 54.53, indicates a EUR/USD move to the $1.06342 resistance level before entering overbought territory.