EUR/USD, Oil Forecast: Two trades to watch

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Fiona Cincotta
By :  ,  Senior Market Analyst

EUR/USD looks to ECB’s Christine Lagarde & Fed speakers

EUR/USD is edging lower, extending losses from yesterday, but it's still holding on to the majority of Friday's rally.

The euro has seen little impact from ECB policymaker and Bank of France president Francois Vileroy’s comments, who said that at this stage further rate hikes are not the right thing to do.

His comments come ahead of a speech by ECB president Christine Lagarde, who will participate in the IMF, World Bank annual meeting. Any references to the economic outlook, inflation, and monetary policy could impact the euro.

The economic calendar is quiet, with just Italian manufacturing production data, which is expected to fall by 0.7% in July.

The data comes after German industrial production fell for a fourth straight month yesterday as poor demand from China, high interest rates, and worker shortages drag on the sector.

German data has been broadly disappointing across the quarter. The eurozone’s largest economy is expected to contract in Q3 and potentially fall into recession in the second half of the year, which would support the ECB’s stance of keeping rates on hold.

Meanwhile, the USD is rising after a choppy previous session yesterday. While the dollar received support from safe-haven flows early yesterday as the conflict in the Middle East ramped up, Fed commentary later saw the USD give up those gains.

Fed speakers hinted that higher treasury yields could mean the US central bank won’t raise interest rates again this year.

Today, attention will remain on developments in Israel that could direct safe haven plays, and will also turn to Federal Reserve speakers later, including Raphael Bostic, Mary Daly, and Christopher Waller. Should the policymakers support the view that the Fed may be at the end of its hiking cycle, the USD could fall.

EUR/USD forecast – technical analysis

EUR/USD rebounded from the 2023 low of 1.0485 but struggled to surpass the 20 sma at 1.06. The pair trades lower supported by 1.0550 and capped by the 20 sma on the upside. While the RSI is out of oversold territory, it remains below 50.

Sellers will be looking for a break below 1.0550 to tackle 1.05 and 1.0485 to create a lower low.

Buyers will need to rise above the 20 sma at 1.06 to test 1.0615, the September 29 high, and 1.0635, the May low, to extend gains and negate the near-term downtrend.

eur/usd forecast chart

Oil steadies as the oil market reassesses the Middle East risk

After solid gains in the previous session of over 4% the oil markets have turned cautious with prices edging lower.

Oil jumped over $3.5 yesterday after Hamas attacked Israel, and clashes raised fears that the conflict could spread beyond Gaza into the oil-rich region.

Fighting has continued, and there is still plenty of uncertainty. However, for now, the market seems to accept that oil flows will not be directly affected, with no proof that there will be a meaningful reduction in oil exports.

Furthermore, there has been no evidence so far that Iran is complicit in the attacks, giving oil traders little reason to push prices higher for now.

Meanwhile, concerns over global inflation and stagnating growth in Europe could also limit the upside in oil.

Looking ahead, Fed speak will be in focus. A less hawkish-sounding Fed and a weaker USD could help oil prices.

Oil forecast – technical analysis

After rebounding from last week’s low of 80.70, the price is testing resistance at 84.85, the 50 sma, and the August high. Buyers need to rise above here in order to extend gains towards 86.35, the weekly high and the multi-month rising trendline. Above here, the 20 sma at 88.35 comes into play.

Failure to hold above the 50 sma could see sellers test support at 82.40, the April high, and 81.70, the weekly low ahead of 80.70. A break below here creates a lower low.

oil FORECAST CHART

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