EUR/USD PRICE FORECAST:

• EUR/USD Recovers from Psychological 1.0500 Level as the DXY Retreats from 10-month highs.
• ECB Data Remains Weak but German Inflation Showed Positive Signs Ahead of EU Inflation Tomorrow.
• IG Client Sentiment Shows Majority of EURUSD Traders are Holding Long Positions.
• To Learn More About Price Action, Chart Patterns and Moving Averages, Check out the DailyFX Education Section.

The Euro has defended the 1.0500 Psychological level against the Greenback thanks in large part to USD weakness. Having printed fresh 8-month lows just below the 1.0500-mark yesterday this is no doubt a welcome reprieve for Euro bulls. The question of whether it is a sustainable move, however, remains up in the air for now….

EURO AREA AND US DATA

European data releases have been scarce this week, but we did have some positive news from Germany today as headline inflation preliminary estimates showed a sharp drop-off in September. YoY print came in at 4.5% down from the previous 6.1% in August which will be like music to the ears of the European Central Bank. The Eurozone Economic Sentiment Index continued its decline this month but did come in just above estimates. This isn’t a positive though given we are now on a 5th consecutive month of decline since the April print while Consumer Confidence came in at -17.8, in line with forecasts but further deterioration from last month’s print of -16.

The US session brought US jobs data into focus once more and the resilience continues. Initial jobless claims coming in at 204k for the week ended September 23 while the final GDP print came out in line with estimates of 2.1 for Q2. On the flip side there are cracks that are starting to show as evidenced by Home Sales data as the interest rate environment hinders new home buyers.

The line up of Fed Policymakers continues today with Chicago Fed President Austin Goolsbee speaking earlier. A mixed bag from Goolsbee who refused to rule out further rate hikes and fueling the narrative around the USD. Later we will hear further commentary from Policymaker Cook before the floor will be given to Fed Chair Jerome Powell. A continuation of the recent hawkish rhetoric could arrest the slide we are witnessing in the US Dollar Index (DXY) today and provide at least some fresh impetus ahead of the PCE data due out tomorrow.

RISK EVENTS AHEAD FOR EUR/USD

From a risk event perspective, the PCE data EU inflation flash number will take center stage tomorrow and promises to be as intriguing as ever. The recent rise in headline US inflation and a potential slowdown in Q4 mean that the PCE print this month could prove to be even more important than usual. Tomorrow’s data however would need to show a significant beat or miss of expectations for any material longer-lasting move to occur. Otherwise, it could be case of a spike in volatility before the resumption of the current status quo.

For all market-moving economic releases and events, see the DailyFX Calendar

TECHNICAL OUTLOOK AND FINAL THOUGHTS

Looking at EURUSD from a technical perspective and todays bounce occurred just shy of the 2023 lows before making a run for the 1.0550 mark. The advance has continued unto the early hours of the US session and could be a sign of profit taking ahead of both PCE data and Euro flash inflation data.

As things stand EURUSD is on course for a bullish engulfing daily candle close off a key support area, not to mention that the pair had been trading in oversold territory. On the other end of the spectrum, we have a second potential death cross developing as the 50-day MA eyes a cross below the 200-day MA. Earlier In the week we already saw a death cross pattern as the 50-day MA crossed below the 100-day MA.

A bit of mixed signals from the technical side is nothing new in 2023, a year in which many of the major moves have been driven by the constantly evolving macroeconomic outlook. Taking that into account and if the drop in the DXY proves temporary we could be in for another leg to the downside heading into next week. Key resistance areas I will be keeping an eye on will be 1.0600, 10630 and a potential third touch of the descending trendline if we are to see a deep retracement.

EUR/USD Daily Chart – September 28, 2023

Source: TradingView

IG CLIENT SENTIMENT DATA

IGCS shows retail traders are currently Net-Long on EURUSD, with 70% of traders currently holding LONG positions. Given the contrarian view adopted here at DailyFX, is EURUSD destined for further downside?

https://www.dailyfx.com/news/forex-eur-usd-gets-a-reprieve-with-the-dollar-on-offer-today-20230928.html