EUR/USD Forecast: Lagarde’s Words to Dictate EUR USD Fate Amid Trade Data Watch

Highlights

• On Thursday, the EUR/USD experienced a notable slide, dropping by 0.80% to end at $1.06429.
• Awaiting Eurozone trade data, with expectations of a narrowed trade surplus from €23B to €20B.
• US consumer sentiment could impact markets.

Thursday Overview

On Thursday, the EUR/USD slid by 0.80%. Following a 0.23% loss on Wednesday, the EUR/USD ended the day at $1.06429. The EUR/USD rose to a high of $1.07521 before falling to a low of $1.06318.

French Inflation and Eurozone Trade Data in Focus

Finalized inflation figures from France will draw interest this morning. However, barring upward revisions to preliminary numbers, the markets will likely disregard them. The ECB delivered a surprise 25-basis point interest rate hike on Thursday. Significantly, the ECB also announced that the current interest rate environment should bring inflation to target.

Considering the ECB stance, investors will likely redirect their focus to the Eurozone economy.

Trade data for the Eurozone will have more influence on investor sentiment later today. Economists expect a narrowing of the trade surplus from €23 billion to €20 billion. A more marked narrowing would reduce buyer interest.

Investors are looking for improved trade terms to boost economic activity and ease the threat of a prolonged economic recession. We expect investors to scrutinize trade terms with key trading partners, including China and the US.

Beyond the numbers, ECB President Christine Lagarde speaks today. A deviation from the Thursday script would influence the EUR/USD pair. The ECB insinuated an end to the monetary policy tightening cycle. Suggestions of further rate hikes would surprise the markets and offer EUR/USD support.

US Consumer Sentiment to End the Week

Later today, Michigan Consumer Sentiment and Expectation figures for September will move the dial. Economists forecast the Michigan Consumer Sentiment Index to slip from 69.5 to 69.2.

A marked decline in consumer sentiment would paint a gloomy consumption outlook. Weaker consumption would raise the threat of a hard landing. Private consumption accounts for about 70% of the US economy. A slump in consumption would impact the US economy, the all-important services sector, and the labor market.

Short-Term Forecast:

Following the ECB surprise rate hike, the focus will turn to the macroeconomic environment. While the euro area economy heads toward a recession, US economic indicators suggest continued growth, favoring the dollar.

EUR/USD Price Action

Daily Chart

The EUR/USD held above the $1.06342 support level. However, the EUR/USD remained below the 50-day and 200-day EMAs, reaffirming bearish price signals. A EUR/USD return to $1.07 would support a EUR/USD move toward the $1.07635 resistance level.

However, ECB President Lagarde has to deliver hawkish comments to support a EUR/USD rebound.

A break below the $1.06342 support level would give the bears a look at sub-$1.06.

The 14-period Daily RSI at 32.41 shows the EUR/USD can break below the $1.06342 support level before entering oversold territory.

4-Hour Chart

The EUR/USD remains below the 200-day and 50-day EMAs, reaffirming the bearish price signals. A EUR/USD return to $1.07 would support a EUR/USD move toward the 50-day EMA and the $1.07635 resistance level.

However, a break below the $1.06342 support level would support a EUR/USD move toward $1.06.

The 14-period 4-Hourly RSI at 31.29 leaves the EUR/USD on the border of oversold territory.