EUR/USD Weekly Forecast: The Fed, Euro Area GDP and Inflation, and the US Jobs Report in Focus

Highlights

• The EUR/USD declined by 0.32% in the week ending October 27.
• Euro area inflation and GDP numbers are in the spotlight.
• The Federal Reserve, the Jobs Report, and services sector numbers will impact buyer appetite for the US dollar.

Weekly Overview of Week Ending October 27, 2023

In the week ending on October 27, the EUR/USD declined by 0.32%, ending the week at $1.05586. The EUR/USD rose to a Tuesday high of $1.06945 before sliding to a Thursday low of $1.05211.

Inflation, GDP, and ECB Commentary in Focus

On Monday, the German economy will be in the spotlight. Q3 GDP and October inflation figures will influence the appetite for the EUR/USD. An economic contraction and sticky inflation would impact buyer appetite for the EUR.

Elevated inflation and interest rates would impact borrowing costs and disposable income. A downward trend in disposable income would ease demand-driven inflationary pressure. However, German private consumption accounts for over 50% of the German economy. Pressure on consumer spending would increase the chances of a prolonged German recession.

On Tuesday, German retail sales and French GDP/inflation figures will draw investor interest. However, October inflation and Q3 GDP numbers for the Eurozone will likely have more impact on the EUR/USD.

Manufacturing PMI numbers from Italy and finalized PMIs for France, Germany, and the Eurozone will garner investor interest on Thursday. Numbers from Italy and revisions to German and Eurozone PMIs will influence buyer appetite for the EUR.

The manufacturing sector contributes less than 30% to the euro area economy. However, improving sector conditions would reflect an improving global macroeconomic environment. On Friday, German data and unemployment figures for the Eurozone also warrant consideration.

German trade is a significant consideration for the economic trajectory. Weaker trade terms would impact the Eurozone economy and the EUR/USD.

Beyond the numbers, ECB commentary needs consideration. ECB Chief Economist Philip Lane is on the ECB calendar to speak on Thursday. Forward guidance on inflation, the economy, and interest rates will draw investor interest.

ECB Executive Board members Luis de Guindos (Mon/Tues), Isabel Schnabel (Thurs), Andrea Enria (Mon), and Edouard Fernandez-Bollo (Thurs) will also deliver speeches.

The Labor Market, the Fed, and the Services Sector in Focus

On Tuesday, US consumer confidence and employment costs will garner investor interest. An upward trend in employment costs and improving consumer confidence could fuel consumption. A pickup in consumption may force the Fed to raise interest rates to curb spending. Higher interest rates impact borrowing costs, impacting disposable income and consumer spending.

JOLTs Job Openings and the ADP nonfarm reports warrant consideration on Wednesday. However, the Fed will deliver its penultimate interest rate decision of the year on Wednesday. The markets expect the Fed to leave interest rates unchanged. The rate statement and press conference will impact the US dollar and the global financial markets.

Unit labor costs, nonfarm productivity, and jobless claims will be in focus on Thursday. Tight labor market conditions support wage growth. Wage growth fuels consumption and demand-driven inflation. A more hawkish rate path could counter the influence of wage growth on demand.

On Friday, the US Jobs Report and ISM Non-Manufacturing PMI numbers wrap up a pivotal week for the US Dollar. Wage growth and hiring remain focal points, giving the US Jobs Report significant influence on Fed policy goals.

However, the all-important ISM Non-Manufacturing PMI also warrants consideration. The US services sector contributes over 75% to the US economy. A pickup in service sector activity could allow the Fed freedom to raise interest rates higher.

Short-Term Forecast:

Near-term trends for the EUR/USD hinge on the Fed, the US Jobs Report, and survey-based PMI numbers. A hawkish Fed, a pickup in wage growth, and an increase in service sector activity could reignite talks of parity.

EUR/USD Price Action

Daily Chart

The EUR/USD remained below the 50-day and 200-day EMAs, sending bearish price signals. A break above the $1.06342 resistance level would bring the 50-day EMA into play.

A dovish Fed interest rate decision, softer wage growth, and weaker-than-expected US services sector data would drive demand for the EUR/USD. A EUR/USD move through the 50-day EMA would give the bulls a run at $1.07 and the 200-day EMA.

However, disappointing Euro area inflation and GDP numbers and a hawkish Fed would test buyer appetite for the EUR/USD.

A drop below the $1.05173 support level and the trend line would bring the $1.03655 support level into view.

The 14-period Daily RSI at 45.69 suggests a EUR/USD drop below the trend line before entering oversold territory.

4-Hour Chart

The EUR/USD sits below the 50-day and 200-day EMAs, reaffirming the bearish price signals. A EUR/USD break above the 50-day EMA would support a move to the 200-day EMA and the $1.06342 resistance level.

However, a fall through the $1.05173 support level and trend line would give the bears a run at the $1.03655 support level.

The 14-period 4-Hourly RSI at 45.99 indicates a EUR/USD drop below the trend line before entering oversold territory.