EUR/USD Forecast: US Inflation Data to Impact Q1 Fed Rate Cut Bets

Highlights

• The EUR/USD gained 0.65% on Thursday, ending the session at $1.10107.
• Hawkish ECB commentary and US economic indicators drove buyer demand for the EUR/USD.
• On Friday, US personal income/spending and inflation will impact bets on a Q1 2024 Fed rate cut.

Thursday Overview

The EUR/USD gained 0.65% on Thursday. After a 0.38% decline from Wednesday, the EUR/USD ended the Thursday session at $1.10107. The EUR/USD fell to a low of $1.09352 before rising to a high of $1.10126.

Business and Consumer Confidence and ECB Commentary in Focus

On Friday, business and consumer confidence figures from France and Italy will draw investor interest. An upward trend in business confidence could signal a pickup in job creation rates. Improving labor market conditions would support a positive outlook for consumer confidence.

Upward trends in consumer confidence could fuel consumer spending and demand-driven inflation. The net effect could be delays in ECB discussions on interest rates. An elevated interest rate environment would impact disposable income and curb consumer spending. Downward trends in consumer spending could dampen demand-driven inflationary pressures.

Economists forecast the French Consumer Confidence Index to increase from 87 to 88 points in December. However, economists predict mixed numbers from Italy. Economists expect business confidence to fall from 96.6 to 96.0 and consumer confidence to increase from 103.6 to 103.8.

Beyond the numbers, ECB commentary also needs monitoring. Hawkish chatter could support a return to the $1.10 handle before the US session.

US Inflation and Personal Income/Spending Put the Fed in the Spotlight

On Friday, US personal income/spending and inflation figures warrant investor attention.

The numbers could dictate bets on a Q1 2024 Fed rate cut. Softer-than-expected US inflation numbers could give the Fed the green light to cut interest rates in Q1 2024. However, US personal income and spending numbers also need consideration. Uptrends in personal income and spending could fuel demand-driven inflation and force the Fed to delay cutting interest rates.

Economists forecast the US Core PCE Price Index to increase by 3.3% in November (Oct: 3.5%). Significantly, economists expect personal income and spending to increase by 0.4% and 0.3%, respectively. Both personal income and spending increased by 0.2% in October.

With inflation in focus, Fed comments in reaction to the inflation and personal income/spending numbers also need monitoring.

Short-Term Forecast:

Near-term EUR/USD trends will hinge on US inflation numbers and ECB commentary. Softer-than-expected US inflation numbers and hawkish ECB chatter would support a EUR/USD move to the $1.11 handle.

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 the Thursday high of $1.10126 would support a move to the $1.10720 resistance level.

ECB commentary, US inflation, personal income/spending numbers, and the Fed will influence the buyer appetite for the EUR/USD.

However, a EUR/USD fall through the $1.09500 handle would bring the $1.09294 support level into play.

The 14-period Daily RSI, 60.62, indicates a EUR/USD move to the $1.10720 resistance level before entering overbought territory.

4-Hour Chart

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

A EUR/USD return to the Thursday high of $1.10126 would give the bulls a run at the $1.10720 resistance level.

However, a drop below the $1.09500 handle would bring the $1.09294 support level and the 50-day EMA into play. Buying pressure could intensify around $1.09250. The 50-day EMA is confluent with the $1.09294 resistance level.

The 14-period RSI on the 4-hour chart, 63.22, suggests a EUR/USD move to the $1.10720 resistance level before entering overbought territory.