EUR/USD Forecast: Will ECB Upgrade 2024 Inflation Forecast?

EUR/USD Forecast: Exploring the ECB’s 2024 inflation outlook, Q4 2023 trends, and the impact of US CPI data. Will the ECB announce upgrades?

EUR/USD PRICE FORECAST:

• EUR/USD is hovering around the 1.0730 mark, thanks to early strength in the Dollar Index (DXY).
• Sources suggest that the ECB is poised to increase its inflation outlook for 2024.
• The tone for EUR/USD in Q4 of 2023 could be determined by US CPI data and the ECB rate decision.

EUR/USD Forecast – Will ECB Upgrade 2024 Inflation Forecast?

Japanese Yen Selloff Resumes – USD/JPY, EUR/JPY Eye Further Upside

The Euro staged a late recovery yesterday, helped by a waning Dollar Index (DXY) as the day progressed. Sources indicated the ECB’s plan to raise the 2024 inflation outlook above 3%, resulting in heightened rate hike expectations. This sentiment was reinforced by European Commission President Ursula Von Der Leyen, emphasizing the ECB’s gradual approach.
Today, EURUSD experiences a mild retracement, influenced by the Dollar Index (DXY) showing early strength. This development warrants close monitoring. Is this drop a precursor for Dollar weakness later in the day?

ECB RATE HIKE PROJECTIONS AND US CPI DATA

The ECB’s plan to raise rate hike expectations is causing concern amid the Euro Area’s ongoing economic challenges. Yesterday, we had ZEW data out, with economists particularly concerned about Europe’s most industrialized economy, Germany. The ECB appears keen on raising rates tomorrow, marking the 10th consecutive hike, despite deteriorating economic conditions in the Euro Area. The probability of a rate hike is currently uncertain, standing at 50/50. Rising oil prices are a key variable in this decision. Concerns revolve around the potential for persistently high energy costs to gradually feed into inflation, heightening second-round inflationary pressures.

The US CPI data is due out later today and will be the last inflation print before next week’s FED Meeting. It’s an interesting one, with higher energy prices likely to see an uptick in headline inflation, which in theory should keep the Dollar bid. Market participants appear convinced that the Federal Reserve will hold rates steady next week with a view to a possible hike in November. Will the resurgence in oil prices also weigh on the FED decision at next week’s meeting?

RISK EVENTS AHEAD

From a risk event perspective, we have the US CPI and the ECB Interest Rate Announcement tomorrow, appearing at opposite ends. Expectations for sticky US inflation keep the USD supported, while the likelihood of an ECB rate hike tomorrow stands at 50/50. If the ECB pauses with a hawkish outlook, there’s a chance the Euro could rally afterward. This wouldn’t be surprising, given that markets still price in an 80% chance of one more ECB rate hike in 2023. The next two days could be crucial for EURUSD as the end of Q3 approaches.

TECHNICAL OUTLOOK AND FINAL THOUGHTS

Looking at EURUSD from a technical perspective, we have bounced off a key area of support around the 1.0680 mark, which served as a strong area of support in June. Further downside remains possible today, with the US CPI print potentially serving as a catalyst for further USD strength.

A downward movement confronts the crucial support level at 1.0680; breaching it and a daily candle close could trigger a test of the psychological 1.0500 level. This scenario might pose challenges, particularly if the ECB rate decision tomorrow leans towards the hawkish stance.

All in all, the technical picture looks set to be clouded by the next two days of data releases, after which the outlook on EURUSD from a technical standpoint may begin to clear up as Q4 approaches.

Retail traders are currently net-long on EURUSD, with 63% of traders currently holding long positions.

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