EUR/USD, Oil Forecast: Two Trades to Watch

EUR/USD looks to German IFO business climate

• Struggles as peak rates likely to have been reached
• German IFO business climate expected to fall to 85.2 from 85.7
• EUR/USD hovers around a 6 month low

EUR/USD Is holding steady below 1.0650 at around a six-month low after steep losses in the previous week, the 10^th straight week of losses.

The euro is struggling amid rising bets that the ECB has reached a peak and amid concerns over the gloomy outlook for the economic outlook. German Ifo business climate data is due and is expected to show a deterioration to 85.2 in September, down from 87.2.

The data comes after eurozone PMI data on Friday showed another contraction in business activity and new orders this month. The composite PMI came in at 47.1, which was slightly ahead of August levels of 46.7 but remained below the key 50 level, suggesting a recession is becoming increasingly clear within the euro area.

ECB chief economist Philip Lane said that risks to economic growth were tilted to the downside. He added that the ECB sees inflation on track to reach its 2% target as long as the interest rate is maintained at the current level of 4%, providing the strongest signal yet that the ECB has reached peak rates.

This is in sharp contrast to the Federal Reserve which last week signaled another rate hike this year and less easing next year. The prospect of US interest rates staying higher for longer comes after a series of stronger-than-expected U.S. economic data highlighting resilience in the US economy.

EUR/USD forecast – technical analysis

The EUR/USD trades below its multi-month falling trendline as it hovers below 1.0650 at a 6-month low. The RSI is below 50, and the 50 sma has crossed below the 100 sma in a bearish signal.

Sellers will look to take out 1.0615, the September low, to extend losses towards 1.0515, the March low.

Any recovery needs to rise above 1.0735, last week’s high, to extend gains and 1.0770, the falling trendline resistance.

Oil prices climb after a pause last week

• Tight supply concerns overshadow a hawkish Fed
• Russia bans the export of diesel & gasoline products
• Resistance can be seen at 92.40-93.70

Oil prices are climbing higher after the rally paused in the previous week and as the focus remains on the tight supply outlook.

Russia's temporary ban on diesel and gasoline product exports in an already tight market is offsetting the Federal Reserve’s hawkish message from last week. A more hawkish Fed hurts the oil demand outlook.

Oil prices have rallied over 10% over the past three weeks on expectations of a crude oil supply deficit in the final quarter of the year after Saudi Arabia, and Russia extended additional supply cuts until the end of the year.

Meanwhile, data from the US showed that the number of oil rigs fell by 8 to 507 last week, marking the lowest level since February 2022, despite higher prices.

Also supporting the oil price were reports that China's oil demand rose by 0.3 million barrels per day to 16.3 billion barrels last week, this was partly due to a recovery in jet fuel demand for international flights.

Concerns over the Chinese economic recovery have eased slightly in recent weeks, although investors will be waiting for industrial profits data due on Wednesday for further clues over the health of the Chinese recovery.

Meanwhile, a strong U.S. dollar could limit the upside in oil prices, making oil more expensive for buyers with foreign currencies.

Oil forecast - technical analysis

WTI ran into resistance at 92.40 and eased lower, bringing the RSI out of overbought territory, although the steep rising trendline continues to guide the price higher.

Buyers will look for a rise above 92.40 to create a higher high and test resistance at 93.70, the November high.

On the downside, a break below the rising trendline and 90.00 the psychological level could see a test of 88.30, last week’s low, before exposing 87.50 the 20 sma.