EUR/USD Forecast: Impact of Lagarde’s ECB Stance and US Labor Market

Highlights

• The EUR/USD declined by 0.30% on Wednesday, ending the session at $1.08464.
• EU Commission growth forecast and bets on a US soft landing left the EUR/USD in negative territory.
• On Thursday, ECB President Lagarde and Fed speakers need monitoring along with US economic data.

Wednesday Overview

The EUR/USD declined by 0.30% on Wednesday. After a 1.68% rally on Tuesday, the EUR/USD ended the day at $1.08464. The EUR/USD rose to a high of $1.08858 before falling to a low of $1.08315.

ECB President Lagarde and Executive Board Members in Focus

On Thursday, the ECB will take center stage. After revisions to 2023 and 2024 growth forecasts, ECB views on the economy and the interest rate trajectory need monitoring. The EU Commission downwardly revised growth forecasts for 2023 and 2024.

Before the revised growth forecasts, ECB President Lagarde stated the ECB would not begin considering rate cuts for the next two quarters. Deviation from her previous stance would impact the EUR/USD.

ECB Executive Board members Andrea Enria and Luis de Guindos are also on the calendar to speak.

There are no economic indicators from the euro area to influence EUR/USD trends on Thursday.

US Fed Speakers and the Labor Market in Focus

On Thursday, US jobless claims will garner investor interest. Tighter labor market conditions could test market bets on the Fed cutting rates within H1 2024. Economists forecast initial jobless claims to rise from 217k to 220k in the week ending November 11.

Tight labor market conditions support wage growth and increases in disposable income. An upward trend in disposable income would fuel consumer spending and demand-driven inflationary pressures.

The markets are currently eying a possible May Fed rate cut. According to the CME FedWatch Tool, there is a 47.9% chance of a 25-basis point rate cut in May.

However, manufacturing sector economic indicators also need consideration. The manufacturing sector contributes less than 30% to the US economy. Cracks in the US economy could raise fears of a hard landing and fuel bets on a May Fed rate cut. Industrial production and Philly Fed Manufacturing Index numbers warrant consideration.

Beyond the numbers, Fed speakers could also influence the buyer appetite for the US dollar.

Fed Vice Chair John Williams and FOMC members Loretta Mester, Lisa Cook, and Michael Barr are on the calendar to speak. Reactions to the inflation and retail sales figures need monitoring.

Short-Term Forecast:

ECB and Fed speakers may influence short-term EUR/USD trends. Dovish Fed comments on US inflation and retail sales could drive EUR/USD towards $1.10, but the ECB must maintain its interest rate guidance for support.

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 $1.09 would support a move to the $1.09294 resistance level.

US economic data and central bank speeches will be the focal points on Thursday.

Hawkish Fed comments and better-than-expected US stats would support a EUR/USD fall through the $1.07838 support level. A fall through the $1.07838 support level would bring the 200 EMA into view.

The 14-period Daily RSI, 64.83, suggests a EUR/USD move to the $1.09294 resistance level before entering overbought territory.

4-Hour Chart

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

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

However, a EUR/USD fall below the $1.07838 support level would bring the 50-day EMA into play.

The 14-period RSI on the 4-hour chart, 66.89, suggests a EUR/USD move to $1.09 before entering overbought territory.