EUR/USD Weekly Forecast: US Retail Sales, Germany, the ECB, and the Fed in Focus

Highlights

• The EUR/USD gained 0.07% in the week ending January 12, closing the week at $1.09485.
• In the week ahead, German economic indicators, the Eurozone economy, and ECB speakers will be in focus.
• US retail sales, consumer sentiment, and the Fed will also need consideration.

Weekly Overview of the EUR/USD in the Week Ending January 12, 2024

In the week ending on January 12, the EUR/USD gained 0.07%, ending at $1.09485. The EUR/USD fell to a Tuesday low of $1.09191 before rising to a Thursday high of $1.09994.

EUR/USD Analysis: The German Economy and Inflation

On Monday, the German and Eurozone economies will be in the spotlight. German wholesale prices and 2023 GDP numbers kickstart the week.

A continued fall in wholesale prices would signal a weak demand environment. Wholesalers reduce prices in a low-demand backdrop. However, GDP numbers could have more impact. While the markets expect a contraction, a worse-than-expected contraction could spook investors.

Economists forecast a 0.3% decrease in wholesale prices for December and a 0.3% contraction in the economy.

Eurozone trade and industrial production figures will likely send mixed signals after the member state numbers. Economists expect the trade surplus to widen from €11.1 billion to €12.5 billion. However, economists predict industrial production to fall by 0.3% after declining by 0.7% in October.

On Tuesday, finalized German inflation and ZEW Economic Sentiment figures need consideration. Barring revisions to the inflation numbers from Germany, the ZEW Economic Sentiment numbers should impact the EUR/USD more.

Economists forecast the German ZEW Economic Sentiment Index to slip from 12.8 to 12.7 in January. However, economists expect the Eurozone ZEW Economic Sentiment Index to rise from 23 to 25.

Finalized Eurozone inflation figures will garner investor interest on Wednesday. Upward revisions to the preliminary numbers for December could delay ECB discussions about rate cuts. According to preliminary numbers, the annual inflation rate accelerated from 2.4% to 2.9% in December.

On Thursday, the ECB Monetary Policy Meeting Minutes will be in focus. ECB Chief Economist Philip Lane warned rate cut discussions are not a topic near-term. More hawkish-than-expected minutes could drive demand for the EUR.

German producer prices wrap up a busy week for the EUR. A further decline in producer prices would signal a weaker demand environment. Producers reduce prices in a competitive backdrop, easing demand-driven consumer price inflation.

US Dollar Update: US Retail Sales and Consumer Sentiment

On Tuesday, the NY Empire State Manufacturing Index will garner investor interest. The manufacturing sector accounts for less than 30% of the US economy. However, investors will respond to further indications of a soft landing.

Retail sales figures warrant investor attention on Wednesday. Upward trends in consumer spending could drive demand-driven inflation. The net effect could be delays in Fed rate cuts to curb spending. Economists forecast retail sales to increase by 0.4% in December after rising by 0.3% in November.

On Thursday, weekly jobless claims and Philly Fed Manufacturing numbers will be in focus. Tight labor market conditions support wage growth and could increase disposable income. Upward trends in disposable income could fuel consumer spending. A higher-for-longer Fed rate path could impact disposable income and curb spending.

Preliminary Michigan Consumer Sentiment numbers for January wrap up the week for the US dollar.

Upward trends in consumer confidence could signal a positive outlook for consumer spending. However, the sub-components, including inflation and employment, will influence sentiment toward Fed interest rate goals. Economists forecast the Consumer Sentiment Index to decline from 69.7 to 69.6.

Other stats in the week include housing sector data and industrial production numbers. However, these should have a limited impact on Fed policy expectations.

ECB and Fed Speakers on the Calendar

Beyond the numbers, investors must monitor central bank commentary.

ECB President Lagarde (Mon/Wed/Thurs/Fri) is on the calendar to speak. ECB Executive Board members Luis de Guindos (Tues), Piero Cipollone (Wed), and Elizabeth McCaul (Fri) will also deliver speeches.

From the Fed, FOMC members Christophe Waller (Tues), Michael Barr (Wed), John Williams (Wed), Raphael Bostic (Thurs), and Mary Daly (Fri) are on the calendar to speak.

Short-Term Forecast:

The near-term trends for EUR/USD hinge on central bank speakers, US retail sales, German GDP, and euro area inflation numbers. A decline in US consumer spending and sticky euro area inflation signals could tilt monetary policy divergence toward the EUR.

EUR/USD Price Action

Daily Chart

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

A EUR/USD breakout from the $1.10 handle would support a move to the $1.10720 resistance level. A EUR/USD break above the $1.10720 resistance level would give the bulls a run at the $1.11 handle.

The focus will be on the German economy, euro area inflation, US retail sales, and central bank speeches.

However, a break below the $1.09294 support level and the 50-day EMA would give the bears a run at the 200-day EMA and $1.07838 support level.

The 14-period Daily RSI at 50.76 indicates a EUR/USD move to the $1.11 handle before entering overbought territory.

4-Hour Chart

The EUR/USD hovered below the 50-day EMA while sitting above the 200-day EMA, sending near-term bearish but longer-term bullish price signals.

A EUR/USD move through the 50-day EMA would bring the $1.10720 resistance level and the $1.11 handle into play.

However, a break below the $1.09294 support level and the 200-day EMA would support a fall toward the $1.07838 support level.

The 14-period 4-Hourly RSI at 46.62 suggests a EUR/USD break below the $1.09 handle before entering oversold territory.