**EUR/USD Outlook: Steady Below 1.16 as Markets Weigh Mixed EU and US Indicators**
*Adaptation and expansion of an article by Yohay Elam, originally published on Forex Crunch.*
The EUR/USD currency pair continues to trade sideways below the psychological level of 1.16, as investors absorb a range of conflicting economic signals from both the Eurozone and the United States. While both economies have shown episodic strength, uncertainty surrounding inflation, central bank policy trajectories, and fiscal developments is keeping the pair in a consolidative phase.
Despite repeated attempts to break out of the narrow trading range between 1.1530 and 1.1590, the currency pair lacks a decisive catalyst to determine a firm direction heading into the final quarter of the year. The mixed macroeconomic data from both global powerhouses underscores this indecision.
Below, we take a comprehensive look at the fundamental forces, economic data, technical indicators, and political developments influencing the euro-dollar pair at this critical juncture.
**1. European Economic Landscape: Sluggish Recovery**
The eurozone economy has struggled to find consistent momentum post-pandemic, despite strong fiscal support schemes and the European Central Bank’s (ECB) expansive monetary policy. The continent faces a convergence of challenges:
– Stubbornly low core inflation, despite rising headline numbers due to energy costs.
– Slower-than-expected industrial output growth, especially in powerhouse economies like Germany and France.
– Continued supply chain disruptions, particularly in the automotive and manufacturing sectors.
– Surging energy prices, which threaten household consumption across member countries.
– Political gridlock in Germany and other countries following recent elections slows policy implementation.
The ECB, under President Christine Lagarde, has remained cautious in its policy approach. The bank continues to reiterate that the current inflationary pressures are transitory and do not warrant immediate tightening.
ECB officials have signaled that interest rates are unlikely to rise in the near term and that asset purchases under the Pandemic Emergency Purchase Programme (PEPP) will continue, albeit at a “moderately lower pace” compared to earlier this year.
**2. US Economy: Growth With Side Effects**
The situation is more complex across the Atlantic. The US continues to see upbeat labor market numbers, strong consumer demand, and corporate earnings that surpass expectations in many sectors. However, risks remain:
– Inflation persists at levels higher than the Federal Reserve’s long-term 2 percent target, driven by labor shortages and supply chain bottlenecks.
– A sharp rise in energy prices adds further input cost pressures to manufacturers and reduces real disposable income for consumers.
– The political battle over the debt ceiling and potential government shutdown creates intermittent headwinds.
– The Federal Reserve has begun guiding the market toward gradual policy tightening.
Fed officials have been increasingly hawkish in their rhetoric. Jerome Powell, Chair of the Federal Reserve, has confirmed that the tapering of asset purchases is set to begin in the coming months, possibly as early as the next Federal Open Market Committee (FOMC) meeting.
This divergence in policy stances between the ECB and the Fed has contributed to dollar strength, placing downward pressure on EUR/USD.
**3. Recent Economic Indicators: Contrasts Persist**
Recent data releases from both economies continue to paint a picture of divergence. Below is a closer look at both sides of the equation:
*Eurozone Key Data Highlights:*
– Core Consumer Price Index (CPI) remains below expectations, signaling limited inflationary pressure when energy and food prices are excluded.
– German business confidence has dipped according to the Ifo and ZEW indices, indicating concern among business leaders.
– Purchasing Managers Index (PMI) readings have softened, with services dragging due to continued limitations in tourism and mobility.
– Retail sales have been uneven across the bloc, with southern economies lagging.
*United States Key Data Highlights:*
– Non-Farm Payrolls (NFP) figures have been solid, though the pace of job creation is showing signs of slowing
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