EUR/USD, Oil Forecast: Two trades to watch

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Fiona Cincotta
By :  ,  Senior Market Analyst

EUR/USD struggles below 1.09 ahead of manufacturing data & Fed Chair Powell’s speech 

  • Eurozone inflation cooled to 2.4% 
  • US ISM manufacturing PMI & Fed Powell in focus 
  • EUR/USD attempts to rise above 1.09 

EUR USD is recovering back above 1.09 after losses in the previous session. 

The euro came under pressure after euro zone inflation cooled by more than expected to 2.4% YoY, down from 2.9% in October, fueling expectations that the ECB will start to cut interest rates sooner rather than later.  

Despite recent comments from ECB president Christine Lagarde, pushing back on rate cut expectations, the market is now pricing in a full 25 basis point rate count by April next year. 

Attention now turns to eurozone manufacturing PMI figures, which are expected to confirm the preliminary reading of 43.8, up marginally from 43.1 but still well below the key 50 level, which separates expansion from contraction. 

Several ECB speakers will also be in focus. The market will be listening closely for their take on the future path for interest rates as inflation falls within reach of the central bank's 2% target. 

The U.S. dollar is inching lower after rising yesterday but is still on track to book steep losses across the month of November, marking its worst monthly decline since the start of the year. The USD has dropped on bets that the Federal Reserve will start to cut rates soon. 

Data yesterday showed that personal spending grew at a slower pace, and inflation cooled, in line with expectations, easing to 3.5% YoY, down from 3.7%. The market is pricing in a 90% probability that the Fed will leave interest rates unchanged at the December meeting and is now pricing in a 42% probability that the Fed will cut interest rates by 25 basis points in April. This is up from 27% last. 

Attention will now turn to comments by Federal Reserve chair Jerome Powel, who could try to dampen down expectations of a rate cut next year and reiterate the Federal Reserve stance that rates need to stay higher for longer. Earlier in the week, Fed Governor Christopher Waller adopted a more dovish tone, hinting at rate cuts next year. 

Prior to Federal Reserve Powell’s speech, attention will be on ISM manufacturing data, which is expected to show a slower pace of contraction at 47.6 in November up from 46.7 in October. 

EUR/USD forecast – technical analysis 

After falling below 1.09, EUR/USD is attempting to rebound higher. The price found support on the rising trendline dating back to early October. A sustained move below 1.09 brings 1.0850, last week’s low, into focus ahead of the 200 sma at 1.0820. 

Any recovery would look to rise above 1.0965, last week’s high, ahead of 1.1020, the November high. A rise above here creates a higher high. 

eur/usd forecast chart

 

Oil struggles after OPEC+ underwhelms 

  • OPEC+ cuts were below what the market had been pricing in 
  • Fed Chair Jerome Powell in focus 
  • Oil failed to close above the 200 sma 

Oil prices are falling for a second straight day, extending losses from the previous session after OPEC+ underwhelmed. 

OPEC+ agreed to deepen the current production cuts of 1.3 million barrels per day by an additional 900,000, taking the total to over 2 million barrels per day. However, this left traders disappointed as they had been pricing larger additional cuts of up to 2 million barrels per day. 

Once the market gets over the initial disappointment, these measures could be sufficient to keep the price supported above the November low. Attention is now likely to shift back to the demand picture and the likelihood of the US economy achieving a soft landing as well as the struggling recovery in China. 

The other point to bear mind here is that it appears that the OPEC+ production cuts are voluntary and not part of an OPEC+ agreement, which draws attention to strains within the group and raises doubts over whether the pledge will just be on paper rather than the supply actually being removed from the market. 

Looking ahead, attention will be on Federal Reserve Jerome Powell and any comments on the outlook for the US economy as well as the future path for interest rates, which could affect the demand picture. 

Oil forecast – technical analysis 

Oil failed again to close above the 200 sma, and continues to struggle around 76.00.  

A break below support at 74.00, last week’s low, opens the door to 72.40, the November low. A break below her creates a lower low. 

Any recovery needs to see a close over the 200 sma at 78.20 to test the weekly high, just below 80.00. 

oil FORECAST CHART

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