EUR USD Forecast: US CPI Report’s Influence on Currency Trends

Highlights

• The EUR/USD rose by 0.13% on Monday, ending the session at $1.06986.
• Risk on sentiment stemming from hopes of better US-China ties drove buyer demand.
• On Tuesday, the Eurozone GDP, the US CPI Report, and central bank speeches will be in focus.

Monday Overview

The EUR/USD rose by 0.13% on Monday. Following a 0.16% gain on Friday, the EUR/USD ended the day at $1.06986. The EUR/USD fell to a low of $1.06650 before rising to a high of $1.07062.

Eurozone GDP and ECB Commentary in the Spotlight

On Tuesday, Eurozone GDP numbers for the third quarter will draw investor interest. Weaker-than-expected numbers would weigh on the appetite for the EUR/USD. A more marked contraction could ease pressure on the ECB to maintain a hawkish rate path. Significantly, the markets may begin considering an ECB rate cut to prevent a prolonged economic recession.

A less hawkish ECB rate path could reduce borrowing costs and increase disposable income. An upward trend in disposable income could fuel consumption. Eurozone private consumption contributes over 50% to the Eurozone economy.

However, sticky inflation could delay an ECB rate cut until mid-2024. Eurozone inflation numbers are out on Friday.

Other stats include ZEW Economic Sentiment numbers for Germany and the Eurozone. Improved sentiment figures for November could cushion the impact of a Eurozone economic contraction.

With GDP numbers in view, ECB commentary also needs consideration. ECB Chief Economist Philip Lane is on the calendar to speak. Concerns over sticky inflation and suggestions of further rate hikes need consideration.

Fed Speakers and the US CPI Report in the Spotlight

Later in the Tuesday session, the US CPI Report warrants investor attention. Sticky inflation could fuel bets on a December Fed interest rate hike. A more hawkish Fed rate path would raise borrowing costs, reducing disposable income. A downward trend in disposable income could affect consumer spending and dampen demand-driven inflationary pressures.

Economists forecast the US annual inflation rate to soften from 3.7% to 3.3%. However, economists expect core inflation to remain at 4.1%.

With inflation in the spotlight, FOMC member speeches also need monitoring. FOMC members Loretta Mester, Michael Barr, and Austan Goldsbee are on the calendar to speak. Hawkish comments on interest rates would fuel demand for the US dollar.

Short-Term Forecast:

Near-term trends will hinge on the US CPI Report and Fed speakers. The ECB aims to leave rates unchanged. Bets on a Fed interest rate hike would tilt monetary policy divergence toward the US dollar.

EUR/USD Price Action

Daily Chart

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

A EUR/USD break above the 200-day EMA would support a move toward the $1.07838 resistance level.

Eurozone GDP, US inflation, and central bank speeches are in focus.

Sticky US inflation and hawkish Fed comments would affect the EUR/USD. A drop below the 50-day EMA would bring the $1.06342 support level and $1.06000 into play.

The 14-period Daily RSI, 57.01, suggests a EUR/USD move to the $1.07838 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 return to $1.0750 would support a break above the $1.07838 resistance level.

However, a fall through the 50-day EMA would bring the 200-day EMA and the $1.06342 support level. Buying pressure may intensify at $1.0640. The 200-day EMA remains confluent with the $1.06342 support level.

The 14-period RSI on the 4-hour chart, 54.80, indicates a EUR/USD move to the $1.07838 resistance level before entering overbought territory.