EUR/USD Forecast: All Eyes on Euro Area CPI, US Jobs Report

EUR/USD Outlook

EUR/USD bounces back from a fresh monthly low (1.0673) even as the Biden administration takes steps to remove the uncertainty surrounding the US debt ceiling, but key data prints on tap for later this week may sway the exchange rate amid growing speculation for another Federal Reserve rate hike.

EUR/USD Forecast: All Eyes on Euro Area CPI, US Jobs Report

Plans to suspend the US debt ceiling until 2025 appears to have generated a mixed reaction in foreign exchange markets as the Greenback outperforms against commodity bloc currencies, while the Euro bucks the trend as it appreciates against most of its major counterparts.

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Looking ahead, it remains to be seen if fresh remarks from European Central Bank (ECB) President Christine Lagarde will influence foreign exchange markets as the Governing Council no longer provides forward guidance, and market participants may pay increased attention to the Euro-Area Consumer Price Index (CPI) as both the headline and core rate are anticipated to show slowing inflation.

Easing price pressures in Europe may drag on EUR/USD as it encourages the ECB to pause its hiking-cycle, but a stronger-than-expected CPI report may generate a bullish reaction in the Euro as it puts pressure on the Governing Council to pursue a more restrictive policy.

In turn, EUR/USD may stage a larger rebound ahead of the update to the US Non-Farm Payrolls (NFP) report as it halts a six-day selloff, but ongoing signs of a tight US labor market may prop up the US Dollar as it raises the Federal Reserve’s scope to further combat inflation.

Source: CME

As a result, speculation surrounding Fed policy may continue to evolve as the CME FedWatch Tool now reflects a greater than 60% probability for another 25bp rate hike, and the Greenback may face increased volatility ahead of the FOMC interest rate decision on June 14 as US lawmakers rush to suspend the debt-ceiling.

With that said, key data prints coming out later this week may sway EUR/USD as both the ECB and FOMC continue to combat inflation, but the exchange rate may stage a large rebound going into June as it fails to extend the series of lower highs and lows from last week.

Euro Price Chart – EUR/USD Daily

Chart Prepared by David Song, Strategist; EUR/USD on TradingView

• EUR/USD bounces back from a fresh monthly low (1.0673) to keep the Relative Strength Index (RSI) above 30, and the exchange rate may stage a larger rebound as it no longer reflects bearish price action from last week.
• At the same time, the RSI may show the bearish momentum abating as it appears to be reversing ahead of oversold territory, and the oscillator may threaten the downward trend from earlier this year as long as EUR/USD holds above the March low (1.0516).
• Lack of momentum to test 1.0610 (38.2% Fibonacci retracement) may push EUR/USD back towards the 1.0880 (23.6% Fibonacci extension) to 1.0940 (50% Fibonacci retracement) region as it trades within the yearly range, with the next area of interest coming in around 1.1070 (23.6% Fibonacci retracement) to 1.1090 (38.2% Fibonacci extension), which coincides with the monthly high (1.1092).
• However, a break/close below 1.0610 (38.2% Fibonacci retracement) may lead to a test of the March low (1.0516), with the next area of interest coming in around the January low (1.0483).

Additional Resources:

USD/JPY Forecast: RSI Flashes Overbought Signal for First Time in 2023

AUD/USD Breaches March Low to Bring November Low on Radar

--- Written by David Song, Strategist

Follow me on Twitter at @DavidJSong