EUR/USD, Oil Forecast: Two trades to watch

Oil rig in the sea
Fiona Cincotta
By :  ,  Senior Market Analyst

EUR/USD struggles on rate cut bets 

  • Eurozone Q3 GDP expected at -0.1% QoQ 
  • The market considers a March rate cut 
  • EUR/USD falls to a 3-week low 

EUR/USD is hovering around a three-week low as ECB rate cut bets rise. The euro is down around 1% so far this week and is on track for its sharpest weekly decline since May. 

Euro weakness comes as traders bet that the ECB will be one of the first major central banks to cut interest rates and is pricing in an 85% probability of a rate cut at the March meeting, with almost 150 basis points worth of cuts priced into next year. 

ECB policymaker Francoise Villeroy de Gallhau said that the topic of rate cuts could come up in 2024 as deflation is happening more quickly than expected. His comments come after the ECB hawk Isabel Schnabel also suggested that the next move by the ECB will be a rate cut after a significant fall in inflation.  

The ECB will meet next Thursday and is expected to leave rates on hold at a record 4%, although the main focus will be on the outlook. Ahead of that, today, the focus is on eurozone GDP data, which is expected to confirm a 0.1% contraction in Q3. Recent PMI data has also pointed to a contraction in Q4, tipping the region into recession. 

The U.S. dollar is firmer after dropping 3% last month and trades at a 3-week high versus its major peers. The Fed is also expected to start cutting interest rates next year, although there is uncertainty surrounding the timing. This uncertainty has lifted the greenback despite JOLT job openings and ADP data this week coming in weaker than expected, supporting a more dovish Fed. 

Attention is now on US jobless claims, which were expected to rise to 222K, and continuous claims are also expected to remain elevated at 1910K. The data comes ahead of tomorrow's nonfarm payroll book and next week's FOMC meeting. Weak data could fuel bets of a rate cut by the Fed sooner rather than later next year. 

EUR/USD forecast – technical analysis 

EUR/USD has broken below its 200 SMA at 1.0820, which, combined with the RSI below 50, keeps sellers optimistic about further losses. 

Sellers need to break below support at 1.0750, the December low, and the November 3 high to extend the bearish move towards 1.07, the 50 sma, and the lower band of the rising channel to bring 1.0670 into target. 

Should 1.0750 hold, buyers have an uphill climb to the, 200 SMA at 1.0820. A rise above here brings 1.0850, the November 22 low, into focus. 

eur/usd forecast chart

Oil rises after steep losses, but gains could be limited 

  • OPEC+ supply cut doubts & demand concerns  
  • China data could limit gains 
  • Oil breaks below $70 

Oil prices are rising from a six-month low reached in the previous session but concerns over OPEC+ cuts and weak demand remained. 

Oil plunged through the $70 a barrel level, marking a bearish technical development.  

Recent weakness in oil markets has been driven by a range of factors including the voluntary element to the OPEC+ supply cuts announced earlier in November, disappointing growth in China, slowing growth in the US, and record non-OPEC production. 

As the dust settles on yesterday's sell-off, the move appears overdone, helping a short-term rebound. 

However, China's weak trade data today underscores the concerns over the health of the world's largest oil importer, which could limit gains. Chinese customs data showed crude oil imports in November fell 9% compared to a year earlier owing to high inventory levels and as weak economic indicators slow orders. 

Meanwhile, U.S. data will also be in focus. Recent weakness in the US labour market and signs of cooling inflation fuel concerns of a global economic slowdown, which is bad news for the oil demand outlook. Should USA data continue to weaken, this could fuel recession concerns and drag oil prices lower. 

Oil forecast – technical analysis 

Oil broke below 70.00 which, with the RSI below 50, brings 67.00 the June low into focus, with a break below here bringing 64.00 the March and May lows into target. 

Any recovery must first push the price back above 70.00 the psychological level ahead of 72.50 the mid-November low. A bove here a move to 75.00 could be on the cards. 

oil FORECAST CHART

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