EUR/USD Prices Forecast: Declining German Sentiment Threatens Euro’s Stability

Highlights

• Euro drops after poor German sentiment data.
• GfK report predicts limited economic contribution from consumption.
• Bearish short-term outlook for Euro.

Euro Takes a Dive on Gloomy German Consumer Sentiment

The Euro has surrendered its earlier gains to trade lower on Tuesday, rattled by disappointing German consumer sentiment data. Earlier, the currency had found some footing, trading 0.11% higher at $1.0829, as investors awaited key euro zone inflation data. However, the tide turned quickly, pulling the Euro down to a session low of $1.0806.

Inflation Fears Sparked by German Data

Investor sentiment was dented by data from the GfK institute indicating that German consumer sentiment is set to fall in September. The consumer sentiment index plummeted to -25.5, worse than analysts’ expectations of -24.3, and a decline from the previous month’s -24.6. The numbers have stoked inflation fears, and according to GfK consumer expert Ralf Buerkl, the likelihood of consumer sentiment recovering anytime this year is “dwindling.”

Private Consumption a Drag on Economic Growth

The GfK report further indicated that private consumption in Germany is unlikely to contribute positively to the economy this year. Persistent inflation and declining income expectations have put a damper on the willingness to buy, making consumption a potential burden on Germany’s economic growth. This will likely have ripple effects across the broader Eurozone, casting a shadow over the region’s economic outlook.

Bearish Short-term Forecast for Euro

Given the bleak consumer sentiment in Germany and its potential impact on the Eurozone, the short-term outlook for the Euro remains bearish. Investors should brace for more volatility, especially with impending euro zone inflation data that could further influence the currency’s direction.

By capturing various economic indicators and sentiment indexes, the GfK report serves as a red flag for the Euro and European markets at large. Keep an eye out for upcoming economic data, as it could either exacerbate or relieve the prevailing negative sentiment.

Technical Analysis

The EUR/USD pair’s current 4-hour price of 1.0809 sits marginally below the previous 4-hour close of 1.0810, suggesting near-term price stability. The price is significantly below the 200-4H moving average of 1.0995, indicating a prevailing bearish momentum. Meanwhile, it is narrowly below the 50-4H moving average of 1.0848, reinforcing the bearish sentiment. The 14-4H RSI reading is at 44.50, which is below the neutral 50 mark, signaling weaker momentum.

Furthermore, the price is hugging the main support area of 1.0804, yet far from the main resistance zone between 1.1042 and 1.1065. Given these technical indicators, the EUR/USD market currently appears bearish on a 4-hour time frame.