EUR/USD Forecast: IMF Economic Outlook and Geopolitical Tensions to Stir the Markets

Highlights

• EUR/USD saw a 0.17% drop on Monday, partially reversing gains from Friday.
• IMF’s World Economic Outlook Report holds weight for EUR/USD future projections.
• US CPI Report apprehension and Middle East conflict may keep investors wary.

Monday Overview

On Monday, the EUR/USD declined by 0.17%. Partially reversing a 0.36% gain from Friday, the EUR/USD ended the day at $1.05665. The EUR/USD rose to a high of $1.05744 before falling to a low of $1.05193.

Italian Industrial Production and IMF Economic Outlook in Focus

On Tuesday, Italian industrial production figures for August will draw investor interest. After disappointing German production figures, an unexpected decline could fuel recessionary jitters.

The Italian manufacturing sector contributes less than 20% to the Italian economy. While the numbers may not influence the ECB interest rate path, weak figures would align with the gloomy economic outlook.

Economists forecast industrial production to stall in August after falling by 0.7% in July.

While the numbers will draw interest, the IMF World Economic Outlook Report will likely have a greater impact on the EUR/USD. Forecasts for the euro area could spook investors, with the euro area grappling with the effects of sticky inflation and elevated interest rates.

With economic forecasts in focus, ECB commentary also warrants consideration. ECB President Lagarde will participate in the IMF/World Bank Annual Meetings. References to the economic outlook, inflation, and monetary policy will impact buyer appetite for the EUR.

Fed Speeches and the Middle East Remain Focal Points

Later today, FOMC member speeches will continue guiding the EUR/USD pair. FOMC members Raphael Bostic, Mary Daly, Neel Kashkari, and Christopher Waller are on the economic calendar to speak. Support from FOMC members to hit the brakes on the Fed monetary policy tightening cycle would ease the buying appetite for the US Dollar.

However, news updates from the Middle East also warrant consideration. Reports of other Middle Eastern nations planning to enter the conflict would fuel demand for the US dollar.

Short-Term Forecast:

Dovish FOMC member commentary would support a EUR/USD return to $1.06. However, the US CPI Report and the threat of an escalation in the Middle East conflict may leave investors feeling more cautious.

EUR/USD Price Action

Daily Chart

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

A EUR/USD break below the $1.05230 support level would bring sub-$1.05 into play. News updates from the Middle East, central bank commentary, and the IMF World Economic Outlook Report will impact the EUR/USD.

A return to $1.06 would support a EUR/USD move toward the $1.06342 resistance level. Dovish Fed commentary and easing geopolitical tensions in the Middle East will likely provide support.

The 14-period Daily RSI at 41.75 indicates a EUR/USD break below the $1.05230 support level before entering oversold territory.

4-Hour Chart

The EUR/USD remains above the 50-day EMA but hovers below the 200-day EMA, indicating bullish short-term but bearish longer-term price trends. A EUR/USD fall below the 50-day EMA would support a move to the $1.05230 support level.

However, a EUR/USD return to $1.06 would bring the $1.06342 resistance level into view.

The 14-period 4-Hourly RSI at 54.66 supports a EUR/USD move to the $1.06342 resistance level before entering overbought territory.