Euro-to-Dollar Week Ahead Forecast: Risk of Further Weakness
- Written by: Gary Howes
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The dollar is showing few signs it is ready to relent.
The dollar has been steadily strengthening against the euro since September, and the grind lower can continue in the coming days.
Looking at the charts, we see that last week EUR/USD slipped back below the 21-day exponential moving average (EMA) at 1.1593: it needed to hold above that to turn its early-November rebound into something more enduring.
In short, that early-November bump has fizzled out and the short-term technical setup favours further weakness, with a test of the November 05 low at 1.1468 being preferred.
Dollar strength comes as the market steadily ratchets back bets for an interest rate cut at the Federal Reserve next month on account of robust economic data and still-high inflationary undercurrents in the U.S.
With the market still seeing a near-50% odds of a cut, there's ample scope for pricing to continue to move against a December move. If this week's U.S. dollar encourages this to happen, then euro-dollar will stay under pressure.
This week's price action will be driven by the dollar leg of the equation. Watch PPI data - which is inflation at U.S. manufacturers - on Tuesday for further clues on how the U.S. inflationary picture is evolving.
PPI is important as it signals what's coming down the line for the headline inflation rate. The expectation is for a print of 0.3%, and anything below here would weigh on the dollar and ensure EUR/USD stays supported into midweek.
Retail sales are also out on Tuesday, and this should offer a welcome insight into how the consumer is holding out. The expectation is for a print of 0.4% m/m in September; anything below would weigh on the dollar, and anything above would naturally have the opposite effect.
Wednesday brings durable goods orders, where a 0.2% m/m increase is expected for September.
