The EUR/USD forecast will hinge more on the dollar this week than the euro. There’s not an awful lot of Eurozone data, but we will finally have the delayed release of US jobs report for September on Thursday. This could impact the Fed’s December rate decision where the probability of a rate cut is now a coin toss following the recent hawkish repricing. It could therefore be a choppy affair until the second half of the week in the FX space.
EUR/USD forecast: All about the dollar
A great deal now hinges on what the Fed decides at its 10 December FOMC meeting, with markets pricing the odds of another 25bp cut at 50% or so. The Fed is probably far more comfortable with that sort of expectation, especially given the limited flow of data following what turned out to be the longest government shutdown in US history. It really does feel as though Wednesday and Thursday’s data will set the tone for the dollar’s next move.
On Wednesday we will get the minutes from the 28–29 October FOMC meeting. That, of course, was the gathering where Jerome Powell made a point of stressing that a December cut was anything but guaranteed and that opinions within the FOMC were “strongly differing.” Given the lack of data and the hawkish Fed talk since, don’t expect too much of dollar strength in response to the FOMC minutes. Or weakness, for that matter.
On Thursday, we finally get the September NFP report. Markets are looking for a modest +50,000 gain in payrolls and an unchanged unemployment rate at 4.3%. That sort of outcome is probably neutral. Anything higher, should be at least slightly supportive for the dollar, given that a December Fed cut would require meaningfully weaker numbers.
We’ve also got a heavy line-up of Fed speakers through the week. Their views may influence the dollar’s direction, although the market will pay more attention to data and the Fed commentary this week.
Euro: not much until Friday’s PMI release
The next key data point for the euro arrives on Friday with the flash PMIs for November. These have actually been holding up rather well, hinting that businesses are learning to cope with the still-uncertain global backdrop. There’s also a packed schedule of European Central Bank speakers today. The spotlight will likely fall on Chief Economist Philip Lane, who’s due to speak later in Ireland. The market is hardly expecting any further rate cuts from the ECB, so he will have to say something quite shocking for the market to take notice.
Technical EUR/USD forecast and key levels to watch
From a technical perspective, the EUR/USD forecast has turned positive after it broke out of a bearish channel last week. This was a bullish development, although the currency pair then stalled at the next resistance around 1.1650 area, a prior area of support and resistance. But given the bullish price structure from the previous week, the two-day weakness here should not be seen as a bearish sign, but merely a normal pullback in what could be the start of the next bullish phase. That being said, is important that support at around 1.16 area now holds on a daily closing basis. This level was previously resistance and marks the point of origin of the breakout last week. Should this level hold and we go above 1.1650 in the coming days, then from there, the EUR/USD could kick on, and head towards 1.1750, and higher depending on the outcome of incoming economic data from the US. However, if 1.1600 breaks on a daily closing basis, then that could put the bulls in a spot of bother, in which case we could see renewed weakness toward that 1.1500 long-term support area again.
