EUR/USD Weekly Forecast: The US Labor Market, Fed Chair Powell, and ECB in Focus

Weekly Overview of the EUR/USD in the Week Ending March 1, 2024

In the week ending on March 1, the EUR/USD gained 0.18% to $1.08374. The EUR/USD rose to a Tuesday high of $1.08659 before falling to a Thursday low of $1.07958.

EUR/USD Analysis

On Tuesday, service sector PMIs for February will garner interest. A revision to the Eurozone PMI could influence bets on an April rate cut. The Eurozone services sector accounts for over 60% of the Eurozone economy. Moreover, the services sector is the main contributor to euro area inflation.

According to the preliminary survey, the Eurozone Services PMI increased from 48.4 to 50.0. However, investors must consider the prices sub-component. Higher wages could also fuel consumer spending and demand-driven inflation.

German trade data will draw investor interest on Wednesday. Another slide in exports could fuel expectations of a prolonged German recession. However, the trade data is unlikely to influence the ECB rate path. Wage growth, services, and inflation remain the focal points.

On Thursday, German factory orders will be in focus. Weaker-than-expected numbers could pressure demand for the EUR/USD. Economists forecast factory orders to slide by 6.0% in January. However, the ECB monetary policy decision and press conference on Thursday will impact the EUR/USD more.

The markets expect the ECB to leave interest rates at 4.5%. ECB staff forecasts and views on the timeline for an ECB rate cut will move the dial.

German industrial production and producer prices need consideration early in the Friday session. Producer prices may have more impact on the EUR/USD. Producers reduce prices in a weak demand environment, dampening consumer price pressures. Economists forecast German producer prices to fall by 0.1% in January after sliding by 1.2% in December.

Later in the session, 3d estimate GDP and finalized employment change figures for Q4 will also garner investor interest. Downward revisions to preliminary GDP and employment change figures could raise bets on an April ECB rate cut. According to prelim numbers, the Eurozone economy stalled, while employment increased by 0.3% quarter-on-quarter.

US Economic Calendar: Powell and the US Jobs Report

On Tuesday, the all-important ISM Non-Manufacturing PMI will garner investor interest. A pickup in service sector activity could impact investor bets on an H1 2024 Fed rate cut. The service sector contributes over 70% to the US economy. A higher-for-longer Fed rate path could affect consumer-facing services and dampen demand-driven inflation.

Economists forecast the ISM Non-Manufacturing PMI to decline from 53.4 to 53.0 in February.

On Wednesday, the focus will shift to the US labor market. The ADP employment change and JOLTs Job Openings reports will draw investor interest. Weaker labor market conditions could reduce wages and disposable income. Downward trends in disposable income may reduce consumer spending and dampen demand-driven inflation.

Economists forecast JOLTs Job Openings to decline from 9.026 million to 8.895 million in January. However, economists expect the ADP to report nonfarm employment to increase by 150k in February.

On Thursday, US labor market data will continue to draw investor interest. Unit labor costs, nonfarm productivity, and weekly jobless claims also need consideration.

However, the US Jobs Report (Fri) will significantly impact the EUR/USD. Average hourly earnings and nonfarm payrolls warrant investor attention. Economists forecast wage growth to soften from 4.5% to 4.4% and nonfarm payrolls to increase by 200k. Payrolls surged by 353k in January.

Beyond the numbers, Fed Chair Powell will deliver testimony on Wednesday and Thursday. Inflation, the economy, and timelines for interest rate cuts are likely topics for discussion.

Short-Term Forecast:

The near-term EUR/USD will hinge on service sector PMIs, US labor market data, Fed Chair Powell, and the ECB. A pickup in US service sector activity, a hawkish Fed Chair, and tighter US labor market conditions could tilt monetary policy divergence toward the US dollar. However, ECB staff forecasts and the outlook for interest rates could limit the influence of the US economic calendar.

EUR/USD Price Action

Daily Chart

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

A EUR/USD return to the $1.09 handle would give the bulls a run at the $1.09294 resistance level. The EUR/USD must break down resistance at the Tuesday high of $1.08659 to target the $1.09 handle.

The services sector, the German economy, Fed Chair Powell, the ECB, and the US Job Report need consideration.

However, a break below the 50-day EMA would bring the 200-day EMA and the $1.07838 support level into play.

The 14-period Daily RSI at 52.80 indicates a EUR/USD break above the $1.09294 resistance level before entering overbought territory.

4-Hour Chart

The EUR/USD sat above the 200-day and 50-day EMAs, affirming bullish price signals. Significantly, the 50-day EMA converged on the 200-day EMA. A bullish cross through the 200-day EMA would support a return to the $1.09 handle.

A EUR/USD breakout from the Tuesday high of $1.08659 would support a move to the $1.09294 resistance level. A EUR/USDs move through the $1.09294 resistance level could bring the $1.10 handle into play.

However, a drop below the 200-day and 50-day EMAs would give the bears a run at the $1.07838 support level.

The 14-period 4-Hourly RSI at 53.90 indicates a EUR/USD move to the $1.09294 resistance level before entering overbought territory.