EUR/USD, Oil Forecast: Two trades to watch

Oil extraction
Fiona Cincotta
By :  ,  Senior Market Analyst

EUR/USD falls ahead of consumer confidence data

  • EUR/USD falls after gains last week
  • Eurozone consumer confidence is expected to fall to -18.2
  • EUR/USD struggles below 1.06

EUR/USD is edging lower after gains across the previous week amid U.S. dollar strength as investors looked ahead to the ECB rate announcement, US GDP, and inflation data later in the week.

Before those key events, attention today will be on the eurozone consumer confidence data, which is expected to fall to -18.2 from -17.8 in October. Weak consumer confidence would highlight households' struggles amid still-high inflation and record interest rates. Week consumer confidence often points to a deteriorating economic outlook and falling inflationary pressures, which could add to evidence that the ECB has ended its rate hiking cycle.

Safe-haven flows support the USD amid the ongoing conflict in the Middle East. Elevated 10-year treasury yields, which trade below 5% at the start of the week, also lift the USD. Treasury yields popped above 5% last week following Federal Reserve chair Jerome Powell's comments noting strength in the US economy and a tight labor market, which could warrant tighter financial conditions.

Looking ahead, attention will be on the US Chicago Fed National Activity Index, which is expected to rise in September. The data comes after a series of stronger-than-expected US data points fueling bets that the Federal Reserve may need to keep interest rates higher for longer.

EUR/USD forecast – technical analysis

EUR/USD climbed steadily across last week, pushing above the 20 sma and the falling trendline resistance dating back to mid-July. The RSI is neutral, giving away few clues.

Buyers will look for a rise above 1.0615, last week’s high, to open the door to 1.0640 before exposing the 50 sma at 1.0680.

On the flipside, sellers will look to test 1.0560, the confluence of the 20 sma and the falling trendline support, to test 1.0495, the October 13 low.

 eur/usd forecast chart

 

Oil falls on hopes of diplomacy in the Middle East

  • Oil falls after gains last week
  • Israel holds off from a ground invasion
  • Oil falls below 20 sma and rising trendline

Oil prices are edging lower on Monday in hopes of de-escalating the Israel-Hamas tensions as diplomatic efforts to contain the conflict between Israel and Hamas grew over the weekend, although Gaza continued to be attacked.

Oil prices eased after both Brent and WTI rose around 1% last week, marking the second straight weekly gain on concerns of a potential supply disruption should the Israel-Hamas war draw in oil-rich nations.

News that aid convoys have started to enter the Gaza Strip from Egypt and that Arab leaders and foreign ministers meet for a summit in Cairo over the weekend has brought some level of relief to the markets. The fact that Israel is still holding out from that planned ground invasion into Gaza suggests that the window for diplomacy remains ajar.

It's worth noting that the concerns over tight supply come when supply is already tight due to production cuts by OPEC and Russia. Last week, the US eased sanctions on Venezuela, which could help its concerns over tight supply.

Oil forecast – technical analysis

Oil ran into resistance at 89.79 last week before rebounding lower, falling below the multi-month rising trendline, and is looking to test the 20 sma at 86.60. A break below here exposes the 50 sma 85.80 and last week’s low of 84.40. Below here, 80.70, the October low comes into play.

Should the 20 sma hold, buyers will look towards the rising trendline resistance at 89.25 and 89.80, the October high. A rise above here creates a higher high and brings 92.40, the September high, into focus.

oil FORECAST CHART

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