EUR/USD Weekly Forecast: US Retail Sales and Fed Chatter May Bring Sub-$1.0450 into View

Highlights

• The EUR/USD declined by 0.73% to $1.05067 in the week ending October 13.
• This week, finalized Eurozone inflation figures and ECB commentary may impact ECB policy expectations.
• US retail sales data and Fed speeches to influence investor sentiment toward Fed interest rate hikes.

Weekly Overview of Week Ending October 13, 2023

In the week ending on October 13, the EUR/USD fell by 0.73%, closing the week at $1.05067. The EUR/USD reached a Thursday high of $1.06396 before sliding to a Friday low of $1.04953. Gains from Monday through Wednesday partially offset the weekly losses.

Eurozone Trade and Inflation and the ECB in the Spotlight

Eurozone trade data will be in focus on Monday. Economists forecast the Eurozone trade surplus to widen from €6.5 billion to €12.5 billion in August. A sharp pickup in exports would signal a brighter demand environment and ease fears of a prolonged euro area recession.

However, German and Eurozone ZEW Economic Sentiment figures could test the buying appetite for the EUR/USD. A sharp decline in sentiment toward the German economy would pressure the EUR/USD. Economists forecast the German ZEW Economic Sentiment Index to increase from -11.4 to -9.0.

On Wednesday, finalized Eurozone inflation figures will influence ECB monetary policy expectations. An upward revision to prelim figures could pressure the ECB to raise interest rates.

Higher interest rates would impact borrowing costs, forcing firms to cut costs, including wages. A pullback in wage growth would make consumers curb spending, easing demand-driven inflationary pressures.

Beyond the numbers, ECB commentary also warrants consideration. ECB President Christine Lagarde is on the ECB calendar to speak on Monday and Wednesday. Hawkish forward guidance on interest rates would fuel buying appetite for the EUR/USD.

However, investors should monitor ECB Executive Board member commentary throughout the week. ECB Executive Board members Andrea Enria (Mon), Anneli Tuominen (Mon), Elizabeth McCaul (Fri), Frank Elderson (Wed), Kerstin af Jochnick (Tues), and Luis de Guindos (Tues) will speak.

US Retail Sales and Fed Chair Powell in Focus

On Monday, the NY Empire State Manufacturing Index will garner investor interest. A larger-than-expected decline would test the buyer appetite for the US dollar. The US manufacturing sector contributes less than 25% to the US economy. However, investors will likely be sensitive to early signs of a deterioration in the US macroeconomic environment.

US retail sales figures (Tues) will influence investor bets on Fed interest rate hikes. A pickup in consumer spending would fuel demand-driven inflationary pressures, supporting a more aggressive Fed rate path. Economists forecast retail sales to increase by 0.3% in September (Aug: +0.6%).

Higher interest rates raise borrowing costs, forcing firms to cut staff and wage growth to maintain profit margins. A fall in disposable incomes would lead to consumers curbing spending on non-essential items, easing demand-driven inflationary pressures.

On Thursday, US jobless claims will also move the dial. Tighter labor market conditions would support wage growth and signal an uptrend in consumer spending.

Other stats include industrial production (Tues) and Philly Fed Manufacturing figures (Thurs). However, the retail sales and jobless claims will affect Fed rate hike bets more.

Beyond the numbers, investors should monitor FOMC member speeches. Fed Chair Powell is on the calendar to speak on Friday. Hawkish references to the US CPI Report would weigh on the EUR/USD pair.

FOMC members Bowman, Harker, and Williams are also on the calendar to speak.

Away from the economic calendar, an escalation in the Middle East conflict would drive demand for the US dollar, a safe haven currency.

Short-Term Forecast:

Near-term trends for the EUR/USD hinge on US retail sales, jobless claims, and Fed speeches. A positive US macroeconomic environment contrasts with a struggling Eurozone economy, leaving the Fed in a stronger position to push rates higher and pressure the EUR/USD.

EUR/USD Price Action

Daily Chart

The EUR/USD remained below the 50-day and 200-day EMAs, affirming bearish price signals. A break above the $1.05230 resistance level would support a EUR/USD move to $1.06 and the $1.06342 resistance level.

Upward revisions to Eurozone inflation figures and hawkish ECB commentary would drive buyer appetite for the EUR.

However, better-than-expected US retail sales and hawkish Fed chatter would pressure the EUR/USD.

A EUR/USD return to $1.04500 would give the bears a run at the $1.03922 support level.

The 14-period Daily RSI at 38.35 suggests a EUR/USD fall to $1.04500 before entering oversold territory.

4-Hour Chart

The EUR/USD hovers below the 50-day and 200-day EMAs, reaffirming the bearish price signals. A EUR/USD break above the $1.05230 resistance level would support a move to the 50-day EMA.

However, a return to $1.04500 would bring the $1.03922 support level into play.

The 14-period 4-Hourly RSI at 35.54 supports a EUR/USD fall to $1.04500 before entering oversold territory.