EUR/USD Forecast: Navigating ZEW Sentiments and US Inflation Uncertainties

Highlights

• EUR/USD saw a rise of 0.49% on Monday, settling at a noteworthy $1.07502 after some fluctuation.
• Focus shifts to the German and Eurozone ZEW sentiment figures, hinting at a gloomier horizon.
• Monetary policy bets bolster EUR/USD to $1.07, yet euro area macroeconomic challenges loom large.

Monday Overview

The EUR/USD rose by 0.49% on Monday. Following a 0.02% gain on Friday, the EUR/USD ended the day at $1.07502. The EUR/USD fell to a low of $1.07072 before rising to a high of $1.07593.

ZEW Economic Sentiment in the Spotlight

German and Eurozone ZEW Economic Sentiment figures will draw investor interest today. A more marked decline in economic sentiment would signal a gloomier economic outlook.

Economists forecast the German ZEW Economic Sentiment Index to fall from -12.3 to -15.0 and the Eurozone ZEW Economic Sentiment Index from -5.5 to -6.2.

A gloomier outlook would support bets on the ECB to leave interest rates unchanged on Thursday.

US Inflation Remains the Focal Point

The US CPI Report for August remained the focal point this morning. While the markets are betting on the Fed leaving interest rates unchanged this month, uncertainty lies ahead.

According to the CME FedWatch Tool, the probability of a 25-basis point September Fed rate hike stood at 7% versus 8% on Friday. In contrast, there was a 41.2% chance of a 25-basis point November rate hike versus 43.6% on Friday.

Hotter-than-expected core inflation figures could refuel bets on a November Fed rate hike. The high level of uncertainty will likely test buyer appetite, with no Fed speakers to influence during the FOMC blackout period.

Short-Term Forecast:

Monetary policy bets have supported a EUR/USD return to $1.07. However, the macroeconomic environment remains a headwind for the EUR/USD. A continued trend of deteriorating economic indicators would leave the EUR/USD on the defensive.

EUR/USD Price Action

Daily Chart

The EUR/USD remained below the 50-day and 200-day EMAs, reaffirming bearish price signals. German economic indicators must beat forecasts to support a break above the $1.07635 resistance level to target $1.08.

However, weaker-than-expected ZEW Economic Sentiment numbers would bring sub-$1.07 into play. A fall to sub-$1.07 would give the EUR/USD a run at the $1.06342 support level.

The 14-period Daily RSI at 39.32 indicates a EUR/USD return to sub-$1.0650 before entering oversold territory.

4-Hour Chart

The EUR/USD holds below the 200-day and 50-day EMAs, reaffirming the bearish price signals. A break above the $1.07635 resistance level would give the bulls a run at the trend line and 200-day EMA.

However, weaker-than-expected euro area economic indicators would bring sub-$1.07 into play.

The 14-period 4-Hourly RSI at 39.32 indicates the EUR/USD has room to fall to $1.0650 before entering oversold territory.