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Highlights
- EUR/USD saw a turbulent week, ending with a net drop to $1.06596 after initial gains.
- ECB board members de Guindos and Panetta set to steer today’s monetary conversation.
- EUR/USD’s fate this week lies with the FOMC’s interest rate decision and economic projections.
Friday Overview
On Friday, the EUR/USD gained 0.16%. However, a 0.80% slide on Thursday left the EUR/USD down 0.36% to $1.06596 for the week. The EUR/USD fell to a low of $1.06333 before rising to a high of $1.06878.
ECB Executive Board member commentary will draw interest today. Board members Luis de Guindos and Fabio Panetta are on the calendar to speak today.
On Thursday, the ECB raised interest rates by 25 basis points but also suggested an end to the monetary policy tightening cycle. However, elevated inflation remains an ongoing challenge. Hawkish ECB chatter would offer modest support.
Interest rate hikes affect the labor market and disposable incomes, which can reduce consumer spending and inflationary pressures. Persistent inflation may keep ECB interest rate hikes in consideration.
US Federal Reserve in the Driving Seat
After the ECB hinted at no further interest rate hikes, the focus will turn to the Federal Reserve. In contrast to the euro area, US economic indicators support the theory of a soft landing. However, tight labor market conditions, wage growth, and consumption suggest the need for further interest rate hikes.
Interest rate hikes counter wage growth, impacting consumer spending while easing demand-driven inflationary pressures. Significantly, US private consumption accounts for over 65% of US GDP. Aggressive efforts to curb spending would address inflation but raise the threat of a hard landing.
The FOMC interest rate decision and economist projections will be the focal points for the EUR/USD this week. Revisions to the economic projections will move the dial.
Short-Term Forecast:
The near-term path of the EUR/USD hinges on the Fed interest rate decision and economic projections. Recent economic indicators should reduce the chance of bearish revisions to the FOMC projections. However, the Fed Funds Rate projections will be the key to maintaining pressure on the EUR/USD.
EUR/USD Price Action
Daily Chart
The EUR/USD sat below the 50-day and 200-day EMAs, affirming bearish price signals. A break below the $1.06342 support level would support a EUR/USD move toward $1.06.
The increasing risk of a lengthy euro area recession aligns with the EMA indicators, supporting further EUR/USD losses.
However, a EUR/USD move to $1.07 would give the bulls a run at the $1.07635 resistance level. The EUR/USD needs favorable central bank speeches to support a breakout session.
The 14-period Daily RSI at 35.34 signals a EUR/USD fall to the $1.06342 support level 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 move through $1.07 would support a EUR/USD break above the 50-day EMA. Significantly, a break above the 50-day EMA would signal a breakout and a run at the $1.07635 resistance level.
However, failure to break above the 50-day EMA would leave the $1.06342 support level in play.
The 14-period 4-Hourly RSI at 41.96 signals a EUR/USD break below the $1.06342 support level before entering oversold territory.
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