EUR/USD rises to fresh weekly highs around 0.9960, ahead of ECB’s decision

• The EUR/USD cleared the confluence of a descending channel up trendline and the 50-DMA, exacerbating a move beyond 0.9900.
• US economic data hints at an economic slowdown spurred by Fed’s aggression.
• As measured by the Ifo, business sentiment in Germany was unchanged, though recession fears remain.
• EUR/USD Price Forecast: To test parity if it breaks 0.9980; otherwise, a fall to 0.9800 is on the cards.

The EUR/USD advances sharply due to a soft US Dollar blamed on the Fed’s pivot narrative surrounding the financial markets. Also, solid US corporate earnings keep investors’ mood positive, despite the ongoing global economic slowdown. At the time of writing, the EUR/USD is trading at 0.9969 after hitting a three-week high at around 0.9976.

US equities remain trading in the green, supported by earnings. Meanwhile, US economic indicators continue to paint a gloomy picture for the economy, as conditions in the housing market continue to dampen, albeit Fed officials prepare to slow down the pace of tightening. According to St. Louis Fed President James Bullard, discussions of “where the Fed should go and then become data-dependent” will be held at the November meeting.

In the meantime, early in the US session, housing data reported that prices cooled down, reflecting the impact of higher borrowing costs, given that the Fed had tightened 300 bps during the year. The S&P CoreLogic Case Shiller Price Index for August increased by 13%, less than July’s 15.6%, while the Federal Housing Finance Agency showed that home prices in August rose by 11.9% YoY, lower than the previous month’s 13.9%.

Of late, the Conference Board (CB) Consumer Confidence missed forecasts of 105.9, falling to 102.5 in October. Consumers’ worries are high inflation in food and energy, alongside a possible recession in 2023.

The EUR/USD continued its advance, despite the narrative of bad data for the US being good data. However, the sudden shift regarding a possible “lower size” of Fed interest-rate hikes was headwinds for the US Dollar, as Euro buyers capitalize in the short term.

Across the pond, in the European session, business conditions in Germany continued to deteriorate, as shown by the IFO Business Climate Conditions, at 84.3, vs. September’s downward revised 84.3 reading, unchanged. According to sources cited by Reuters, “Today’s business climate reading does nothing to change the looming recession. In the coming months, further gloom is more likely than an increase.”

Worth noting that the ECB is expected to hike rates by 75 bps in the October meeting, despite recession fears and worries growing in the Eurozone. Money market futures estimates rates to peak at around 2.50% by March of 2023.

EUR/USD Price Forecast: Technical outlook

The EUR/USD is neutral-downward biased, though traders should note that the major cleared the descending channel drawn since February 2022 to the upside, meaning buyers are gathering momentum ahead of the ECB monetary policy meeting. Also, the 50-day Exponential Moving Average (EMA), at 0.9893, was broken, exacerbating a rally toward a three-week high. If the EUR/USD reclaims parity, the following supply zone to be tested would be the 100-day EMA around 1.0099. Once cleared, the next stop would be 1.0200. On the other hand, the EUR/USD first support is the 0.9900 mark. Break below will expose the 50-day EMA at 0.9893, which, if broken, will send the EUR/USD sliding toward the 20-day EMA at 0.9805.