EUR/USD Prices Forecast: German Economic Woes Intensify Ahead of Fed Chair Powell’s Jackson Hole Speech

Highlights

• Powell’s Jackson Hole speech eyed for U.S. monetary policy clues
• German business sentiment hits a low, pushing economy toward recession
• Lack of agreement on Germany’s Growth Opportunities Act exacerbates economic decline

Powell’s Jackson Hole Anticipation

The financial world is in rapt attention, awaiting remarks from Fed Chair Powell at Jackson Hole, crucial for the EUR/USD traders. Powell’s words may give direction on U.S. monetary policy, especially after the 10-year yield surge – its highest since 2007. As the U.S. economy remains steadfast and with inflation potentially enduring, the Fed may need to maintain higher interest rates.

Victory for Powell, But With Reservations

Though the Fed has made significant strides in curbing inflation, Powell’s victory isn’t complete. The central bank remains vigilant, signaling a persistent determination to combat inflation. This determination is strengthened by concerns of underestimating structural shifts in labor markets, which might sustain inflation over 2%, posing risks.

German Economic Concerns Deepen

The German business mood has waned, evidenced by the Ifo institute’s business climate index drop for the fourth consecutive month. High inflation, increased financing costs, and reduced exports have already pushed Germany into a recession. Furthermore, stagnated growth in the second quarter emphasizes the need for fresh economic stimuli.

Government’s Attempt to Revive Growth

Finance Minister Lindner underscores the importance of new economic strategies, emphasizing the Growth Opportunities Act. However, a consensus on the program’s framework eludes Germany’s coalition government. German Economics Minister Habeck concurs on the program’s necessity, considering the bleak global economic scenario and challenges in export dynamics.

Bleak Short-Term Forecast for Germany

Recent Ifo and PMI surveys depict a pessimistic outlook for Germany’s economy. Factors like high interest rates, unwavering prices, and stagnant foreign trade may further pressurize the economy. Experts like Claus Niegsch and Andrew Kenningham predict a probable contraction in the third and fourth quarters, suggesting caution for investors and stakeholders.

Technical Analysis

The EUR/USD’s current 4-hour price at 1.0822 is slightly above its previous 4-hour close of 1.0813, indicating minor upward momentum. Despite this, the currency pair is trading below both its 200-4H moving average of 1.1009 and its 50-4H moving average of 1.0868, suggesting a bearish trend in the short to medium term. The 14-4H RSI stands at 43.29, indicating weaker momentum, as it’s below the neutral 50 level but not oversold.

The currency pair is just testing the main support area ranging from 1.0834 to 1.0804. Given its position below the moving averages and near the support zone, the market sentiment for EUR/USD seems bearish, however, recapturing the support zone could lead to a short-term breakout above the 50-4H moving average of 1.0868.