Title: EUR/USD Weekly Forecast: Optimism Surfaces Ahead of the ECB Meeting
Author: Yohay Elam
Original Article: Head Topics Indonesia (https://id.headtopics.com/news/eur-usd-weekly-forecast-optimism-surges-ahead-of-the-52345872)
The Euro to US Dollar (EUR/USD) currency pair concluded a volatile week with notable gains, as renewed optimism surrounding the European Central Bank (ECB) and a data-driven sell-off in the US Dollar shifted momentum. Market participants are closely monitoring macroeconomic indicators and central bank guidance to determine future price direction.
This article summarizes the key catalysts behind the pair’s movement, analyzes fundamental and technical drivers, and outlines vital events ahead that could influence trading decisions in the coming week.
Major Themes from the Previous Week
The past week saw several developments that boosted the Euro’s value against the Dollar:
– A decline in US inflation data hinted at potential policy easing by the Federal Reserve.
– Markets began pricing in a more hawkish stance from the ECB following strong Eurozone inflation data.
– Weakness in US labor market data added pressure on the US Dollar.
– Optimism in the Eurozone economy increased amid improving survey data and more resilient consumer sentiment.
All of these factors collectively helped EUR/USD climb nearly 100 pips to close around the 1.09 mark, signaling a positive outlook for the single currency. Below is a deeper look at the key drivers.
US Data Weakens the Dollar
The US economy seemed to be losing steam, particularly highlighted by softer inflation and labor-market data:
– Headline Consumer Price Index (CPI) inflation came in lower than expected at 3.2% year-over-year, down from 3.7%.
– Core CPI, which excludes volatile energy and food prices, fell to 4.0% from the previous 4.1%.
– The Producer Price Index (PPI) also recorded a surprising decline of 0.5% during the month.
– Weekly Initial Jobless Claims increased to 231,000 from a revised 218,000, suggesting weakness in the labor market.
Together, these data points prompt speculation that the Federal Reserve may be close to ending its tightening cycle. Pricing from futures markets now leans toward interest rate cuts as early as the first half of 2024, reversing earlier expectations of prolonged restrictive monetary policy.
Fed Chair Jerome Powell reinforced this notion by providing a relatively dovish tone during recent public remarks. While not outright signaling policy easing, Powell highlighted the importance of data-dependence and acknowledged growing slack in the labor sector.
Response from the Eurozone
Meanwhile, the economic landscape in the Eurozone became more favorable to the common currency:
– Germany’s ZEW Economic Sentiment Index rose to 9.8 in November, up from -1.1 in October. This marked a noticeable shift from negative to optimistic outlooks regarding growth in the largest Eurozone economy.
– Eurozone Harmonized Index of Consumer Prices (HICP) inflation surprised to the upside, reinforcing expectations that the ECB might delay interest rate cuts.
– The Euro found additional support from hawkish ECB officials, especially from Bundesbank President Joachim Nagel, who reiterated that the inflation fight is not yet over.
Despite a dovish narrative dominant in prior months, recent developments have allowed the ECB to adopt a wait-and-see approach. This shift was enough for investors to reconsider bearish positioning on the Euro.
Key Macro Data: Comparative Overview
Here is a side-by-side comparison of economic indicators for both regions from the past week:
US Indicators:
– CPI (YoY): 3.2% (Forecast: 3.3%)
– Core CPI (YoY): 4.0% (Forecast: 4.1%)
– PPI: -0.5% (Forecast: 0.1%)
– Initial Jobless Claims: 231,000 (Previous: 218,000)
– Yield on 10
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