The Fed, the ECB, and Inflation in the Spotlight

However, Q3 GDP numbers for the Eurozone will impact near-term EUR/USD trends. An economic contraction may force the ECB into a less hawkish interest rate trajectory to support consumption.

A less hawkish ECB interest rate path reduces borrowing costs, raising disposable income. An upswing in disposable income could fuel private consumption. Private consumption contributes over 50% to the Eurozone economy.

On Wednesday, euro area trade and industrial production figures warrant consideration. A slump in production and weaker trade terms could signal a deteriorating economic outlook. Weaker Eurozone trade terms could influence market bets on the first ECB interest rate cut.

Eurozone inflation figures wrap up an important week for the EUR. Sticky inflation could force the ECB to maintain a hawkish interest rate path at the expense of the economy.

ECB’s Outlook and Influence

Beyond the stats, investors must consider ECB commentary throughout the week. ECB President Christine Lagarde (Thurs/Fri) is on the calendar to speak, with ECB Chief Economist Philip Lane in focus on Tuesday.

Executive Board members Andrea Enria (Tues/Thurs), Frank Elderson (Tues), and Luis de Guindos (Thurs) are also on the calendar to deliver speeches.

Views on the economic outlook, inflation, and interest rates will remain the focal points.

US Economic Outlook and Federal Reserve Action

The US CPI Report kickstarts a pivotal week for the US dollar. Sticky inflation could fuel bets on a Fed rate hike and delay the timing of a Fed rate cut.

A more hawkish Fed rate path raises borrowing costs and reduces disposable income. A downward trend in disposable income would affect spending and dampen demand-driven inflationary pressures.

Retail sales figures for October will also influence sentiment toward the Fed interest rate path. A pickup in consumption would fuel demand-driven inflation, forcing the Fed to take a more hawkish rate path. However, investors must also consider October producer prices.

A continued rise in producer prices could signal sustained demand, supporting a sticky inflation outlook.

On Thursday, the market focus will turn to the US labor market. Tight labor market conditions support wage growth and a positive outlook on consumer spending.

Other US economic indicators include NY Empire State Manufacturing, industrial production, and Philly Fed Manufacturing numbers. However, the numbers will likely play second fiddle to the inflation, retail sales, and labor market numbers. The US manufacturing sector accounts for less than 25% of the US economy.

Considering the influence of inflation and retail sales figures on the Fed, Fed speakers also need monitoring.

Fed Vice Chair John Williams (Tues/Thurs) and FOMC members Mary Daly (Fri), Loretta Mester (Thurs), and Christopher Waller (Thurs) are on the calendar to speak.

Short-Term Forecast:

The near-term outlook for the EUR/USD will likely hinge on Eurozone and US inflation figures. Sticky US inflation amid a resilient US economy could tilt monetary policy divergence further toward the US dollar. However, ECB and Fed speeches will influence sentiment toward ECB and Fed interest rate paths.

EUR/USD Price Action

Daily Chart

The EUR/USD remained above the 50-day EMA while sitting below the 200-day EMA, affirming bullish near-term but bearish longer-term price signals.

A return to $1.07 would give the bulls a run at the 200-day EMA and $1.07838 resistance level.

Better-than-expected Eurozone economic indicators and hawkish ECB speeches could fuel demand for the EUR/USD.

On the other hand, sticky US inflation, a pickup in US consumption, and hawkish Fed speeches would test the appetite for the EUR/USD.

A break below the 50-day EMA would bring the $1.06342 support level and $1.06000 into play.

The 14-period Daily RSI at 55.69 suggests a EUR/USD move through the 200-day EMA before entering overbought territory.