EUR/USD Forecast: Bears Dominate Amid US Data and Middle East...

EUR/USD Weekly Forecast: Bears Dominate Amid US Data and Middle East Tensions

The EUR/USD pair experienced a tumultuous week as bears returned with vigor, leading to a decline to around 1.0510. The pair's efforts to recover from early October lows have been thwarted by recent developments favoring the US Dollar.

Middle East Tensions and Safe-Haven USD

The week began with a surge in the US Dollar due to escalating tensions in the Middle East. An attack by Palestinian group Hamas on Israel prompted Israeli Prime Minister Benjamin Netanyahu to declare war, raising concerns about a wider conflict in the region. These fears drove demand for safety assets, leading to a rise in government bonds and a decline in yields, ultimately benefiting the safe-haven USD.

US Inflation and Employment Data Impact

The US Dollar received another boost as the week progressed when inflation and employment data indicated that the battle against inflation is far from over in the United States. Despite the Federal Reserve's aggressive monetary tightening efforts, inflation remains high, with the September Consumer Price Index (CPI) increasing by 0.4% MoM and 3.7% YoY. The annual core CPI also grew by 4.1%, meeting expectations and putting pressure on inflation.

A tight labor market in the US, where there are more job openings than available candidates, is forcing employers to offer higher salaries to fill positions, contributing to inflationary pressures.

Differing Views from Federal Reserve

Federal Reserve officials held differing views, with some members believing that higher yields tighten monetary conditions on their own, reducing the need for further rate hikes by the Federal Open Market Committee (FOMC).

Central Banks Maintain Their Paths

The FOMC released the Minutes of the September meeting, revealing varying opinions on the need for additional interest rate increases. However, all agreed that rates would need to remain elevated until inflation reaches its target.

In contrast, the European Central Bank (ECB) officials believe that more rate hikes are possible in Europe. While the economic situation in the Euro Zone is less stable than in the US, inflationary pressures remain high.

Key Upcoming Events

The coming week will bring key data, including US Retail Sales and the German ZEW Survey on Economic Sentiment. Despite the contrasting economic landscapes, the EUR/USD pair is likely to remain influenced by US macroeconomic data, Middle East tensions, and central bank decisions.

Technical Analysis

From a technical perspective, the bearish sentiment prevails, with a focus on the support area highlighted by the blue rectangle. The market will closely watch these support levels to determine the next steps in this ongoing tug-of-war between bears and bulls.

Please note that the content of this article is for informational purposes only and should not be considered as financial advice. The EUR/USD forex market is highly volatile and involves risks that should be thoroughly assessed by individual investors.