Friday Overview
On Friday, the EUR/USD declined by 0.12%. Following a 0.02% loss on Thursday, the EUR/USD ended the day at $1.06452. The EUR/USD fell to a low of $1.06147 before rising to a high of $1.06717.
German Business Sentiment and ECB President Lagarde in Focus
The German Ifo Business Climate Index and sub-components for September will draw investor interest today. Economists forecast the headline Business Climate Index to fall from 85.7 to 85.0. A more marked decline would weigh on buyer appetite for the EUR/USD.
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However, economists predict a rise in the Business Expectations Index from 82.6 to 82.9. An improving outlook would offset business sentiment toward the current macroeconomic environment. Economists forecast the Business Current Assessment Index to fall from 89.0 to 88.0.
With the German services sector contributing 70% to GDP, investors should consider updates relating to the services sector. Improving services sector sentiment would support labor market conditions, consumption, and a brighter economic outlook. German private sector consumption contributes more than 50% to GDP.
On Friday, better-than-expected German private sector PMIs failed to shift sentiment toward the macroeconomic environment. Despite an unexpected jump in the services PMI from 47.3 to 49.8, the German private sector continued to contract at a marked pace.
According to the flash PMI survey, business sentiment across the private sector fell to its lowest since November 2022. While services sector sentiment remained modestly positive, manufacturers continued to feel pressure from a weak demand environment.
Beyond the numbers, ECB President Christine Lagarde and ECB Executive Board member Isabel Schnabel are on the calendar to speak. A move away from the higher-for-longer interest rate outlook would test demand for the EUR.
Chicago Fed National Activity Index in the Spotlight
The Chicago Fed National Activity Index will influence sentiment toward Fed policy goals. A pickup in activity would align with the more hawkish FOMC projections and interest rate path. Investors should look beyond the headline figure. Sub-components, including employment and personal consumption, need consideration.
Tight labor market conditions and an upward trend in consumption fuel demand-driven inflation, pressuring the Fed to push rates higher. Higher interest rates would impact labor market conditions and consumer spending power, easing demand-driven inflationary pressures.
Short-Term Forecast:
Economic and monetary policy divergence remains firmly tilted in favor of the US dollar. However, a pickup in German business sentiment would fuel hopes of a shift in the German macroeconomic environment and deliver early EUR/USD support.
EUR/USD Price Action
Daily Chart
The EUR/USD remained below the 50-day and 200-day EMAs, sending bearish price signals.
A larger-than-expected slide in German business sentiment would support a EUR/USD fall through the $1.06342 support level. A break below the $1.06342 support level would bring sub-$1.06 into play.
However, a weaker Chicago Fed National Activity Index would support a EUR/USD return to $1.07. A return to $1.07 would bring the $1.07635 resistance level into view.
The 14-period Daily RSI at 34.93 indicates a EUR/USD fall through the $1.06342 support level before entering oversold territory.
4-Hour Chart
The EUR/USD sits below the 50-day and 200-day EMAs, reaffirming the bearish price signals. A fall through the $1.06342 support level would give the bears a run at sub-$1.06.
However, a break above the 50-day EMA would support a EUR/USD return to $1.07. A return to $1.07 would bring the $1.07635 resistance level into view.
The 14-period 4-Hourly RSI at 44.02 indicates a EUR/USD fall through the $1.06342 support level before entering oversold territory.
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