EUR/USD, Oil Forecast: Two Trades to Watch

EUR/USD falls as concerns over the economy grow

• German consumer confidence fell to -26.5 in October from -25.6
• ECB hinted that it was at peak rates
• EUR/USD has fallen below 1.06 to a fresh 6-month low

EUR/USD is heading lower, falling to a fresh six-month low, putting it on track to lose more than 3% across the quarter marking its worst quarterly performance in a year.

Concerns over the health of the eurozone economy were magnified after German consumer confidence fell by more than expected. The GfK German consumer confidence index fell to -26.5 in October down from a downwardly revised 25.6 in the previous month, suggesting that confidence in the eurozone's largest economy remains fragile.

The data came after German IFO business climate data yesterday showed that sentiment deteriorated for a fifth straight month in September.

Meanwhile, the market is increasingly convinced that the ECB has reached peaked interest rates after it hinted that it could pause its tightening cycle when it met earlier this month.

In a speech earlier this week, ECB president Christine Lagarde indicated that policy rates may have to remain high for a longer duration in order to tame inflation.

Meanwhile, the U.S. dollar is supported by a hawkish standing Federal Reserve. U.S. Treasury yields have pushed higher on the prospect of higher rates for longer. Recent fed speakers have indicated that they support another interest rate hike before the end of the year and could keep rates above 5% across 202.

Looking ahead US durable goods orders are expected to fall -0.5% MoM after falling -5.2% in August

EUR/USD forecast – technical analysis

EUR/USD has extended losses for a seventh straight session, dropping below 1.06 to a fresh 6-month low. The RSI has tipped into overbought territory so sellers should be wary.

Bears will look to extend the selloff to 1.0515, the March low

Buyers will look for a rise above 1.0635, the May low to expose the 20 sma at 1.0690.

 

 

Oil rises with tight supply in focus and EIA inventory data due

• API oil inventories rise, but Cushing’s storage fall below the minimum
• Chinese industrial profits rise in August
• Oil trades caught between 92.40 and the 20 sma

Oil prices are pushing higher on Wednesday as the market remains focused on tight supply as it approaches the winter months, which is overshadowing concerns of an economic slowdown in the US should interest rates stay higher for longer.

According to API data, US crude oil stockpiles rose by 1.6 million barrels, defying analysts' expectation of a decline of 300,000 barrels.

However, markets are concerned about US crude stockpiles at the Cushing storage hub, Oklahoma, which have fallen below the minimum operating levels. This highlights the tightness in the market stemming from supply cuts by OPEC and the additional cuts from Saudi Arabia and Russia. OPEC meet again next week to discuss output.

Also, supporting the oil price is data that indicates that the Chinese economy could be stabilising. Chinese industrial profits jump sharply in August, rising for the first time in more than a year. Industrial profits rose 17.2% compared to a year earlier, although across the first eight months of the year, profits fell 11.7% compared to a year earlier.

The increase in profits suggests that demand in China, the world’s largest oil importer may be improving after government measures to prop up the economy and consumer spending.

Meanwhile, the prospect of higher US interest rates for longer could limit the upside for oil prices amid concerns that higher rates for longer could cause a slowdown in the US economy. Federal Reserve chair Jerome Powell said that he no longer sees a soft landing as the base case scenario for the US.

Looking ahead attention will be on EIA stockpile data which is due later today.

Oil forecast – technical analysis

The impressive oil rally ran into resistance at 92.40 and is consolidating, finding support on the 20 sma at 87.50. The long lower wick on the candle suggests that there was little selling demand at the lower price.

A breakout trade will see buyers looking to retake 92.40 to extend the upside towards 93.20 the November high.

 Sellers will look for a break below 87.50 the weekly low to extend losses towards 84.40 the August high.