ECB and Fed Speeches and US Consumer Sentiment in Focus

Thursday Overview

The EUR/USD declined by 0.39% on Thursday. After a 0.09% gain on Wednesday, the EUR/USD ended the day at $1.06673. The EUR/USD rose to a high of $1.07255 before falling to a low of $1.06601.

ECB President Christine Lagarde in the Spotlight

On Friday, ECB President Christine Lagarde is on the calendar to speak. The ECB President will hold a fireside chat with Martin Wolf at the Financial Times Global Boardroom. On Thursday, the ECB Economic Bulletin highlighted the commitment to bringing inflation to target. The Economic Bulletin discussed the need for a restrictive policy for a prolonged period to address elevated inflation.

The higher-for-longer ECB interest rate trajectory would raise borrowing costs and lower disposable income. A downward trend in disposable income would affect consumer spending and dampen demand-driven inflationary pressures. However, a negative outlook on spending could also adversely affect the euro area economy. Private consumption contributes over 50% to the euro area economy.

US Consumer Sentiment and FOMC Member Speeches in Focus

On Friday, the Michigan Consumer Sentiment Index will garner investor interest. An unexpected pickup in consumer sentiment could signal a positive consumer spending outlook. An uptrend in consumer spending would fuel demand-driven inflation, forcing the Fed to take a more hawkish Fed rate path to dampen spending.

A higher interest rate environment would raise borrowing costs and reduce disposable income. The downward trend in disposable income could curb spending and dampen demand-driven inflationary pressures.

Beyond the headline number, investors must consider the Consumer Expectations and Inflation Expectation components.

With consumer sentiment in focus, FOMC member speeches need consideration after Fed Chair Powell’s speech. Hawkish views on the economy, inflation, and interest rates would fuel demand for the US dollar. FOMC voting member Lorie Logan and non-voting member Raphael Bostic are on the calendar to speak on Friday.

Short-Term Forecast:

Near-term EUR/USD trends remain hinged on central bank speeches. Rising bets on a Fed rate hike would tilt monetary policy divergence toward the US dollar. A deteriorating euro area macroeconomic environment remains a headwind for the EUR.

EUR/USD Price Action

Daily Chart

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

A EUR/USD move through the 200-day EMA would bring the $1.07838 resistance level into play.

Central bank commentary and US consumer sentiment figures are the focal points on Friday.

However, a break below the 50-day EMA and the $1.06342 support level would give the bears a look at sub-$1.06.

The 14-period Daily RSI, 54.13, indicates a EUR/USD break above the 200-day EMA before entering overbought territory.

4-Hour Chart

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

A EUR/USD return to $1.07 would support a move toward the $1.07838 resistance level.

However, a fall through the 50-day EMA would bring the 200-day EMA and the $1.06342 support level into play. Buying pressure may intensify at $1.0634. The 200-day EMA remains confluent with the $1.06342 support level.

The 14-period RSI on the 4-hour chart, 45.15, indicates a EUR/USD fall to $1.06000 before entering oversold territory.