CFD Trading Rate Euro vs US Dollar (EURUSD)

• EUR/USD rallied on a weakening Greenback on Thursday.
• US PPI inflation data failed to spark any major moves, but remained steady.
• The market’s Fed-centric tilt continues unabated as the wait for rate cuts rolls on.

EUR/USD found higher ground on Thursday, rising back above the 1.1050 level as markets lean into a risk-on stance after US Producer Price Index (PPI) figures kept up market hopes for an opening volley from the Federal Reserve (Fed) next week. Markets are confident that the Fed will be kicking off a rate cutting cycle on September 16.

Forex Today: An impasse is likely ahead of the FOMC meeting

EU data remains inconsequential on Friday, and Euro traders will be taking a bit of a breather after the European Central Bank (ECB) dropped its main reference rate to 3.65% from 4.25% on Thursday. The University of Michigan’s Consumer Sentiment Index will give traders on the US side one last glimpse into how consumer’s feel about the overall US economy before wrapping up the trading week.

US PPI rose to 0.2% MoM in August, with core PPI accelerating to 0.3% MoM. Headline PPI was forecast to rise to 0.1% from the previous 0.0%, while core PPI was expected to rise to 0.2% from July’s -0.2% contraction. Despite the near-term upswing, annualized PPI inflation figures were much more attractive to investors, with YoY headline PPI easing to 1.7% from the previous period’s revised 2.1%, and ticking below the expected 1.8%. Core annualized PPI also beat the expected print, holding steady at 2.4% YoY versus the expected 2.5% uptick.

US Initial Jobless Claims also rose slightly higher for the week ended September 6, increasing to the expected 230K from the previous week’s revised 228K. 

With PPI inflation remaining tame and the number of unemployment benefits seekers holding firmly in tepid territory, little lies in the way of a first rate cut from the Federal Reserve (Fed) on September 18. The Fed is broadly expected to deliver a 25 bps cut to kick off 2024’s late-starting rate cut cycle. According to the CME’s FedWatch Tool, rate markets are pricing in over 80% odds of the Fed cutting by a quarter point next week, with a slim 20% still leaning into hopes for an initial double-cut for 50 bps. Rate traders also overwhelmingly expect the Fed to deliver four cuts in total, with December’s rate call expected to land between 425 and 450 bps.

EUR/USD price forecast

Thursday’s rally comes as welcome relief to EUR/USD bulls as the pair recovers from a mid-week plunge toward the 1.1000 handle. Despite a near-term decline from 13-month highs set in late August near 1.1200, short pressure is facing significant challenges from Fiber bidders, and the pair refuses to dip all the way back to the 50-day Exponential Moving Average (EMA) at 1.0984.

EUR/USD daily chart

Today’s ECB decision is expected to result in a 25bps cut in the main target rate to 3.50%, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

Focus is on ECB guidance

“The key focus for markets will fall more onto guidance in the statement and President Lagarde’s press conference. Markets are pricing in another 38bps or so of easing in Q4 but it is not clear that the ECB will move rates lower as quickly as markets are currently expecting.”

“A cautious outlook for additional easing would suggest the ECB is comfortable sticking with its 25bps per quarter pace which may extend the EUR a little support.”

“Spot is tracking a little higher intraday but the overall tone for spot looks soft after yesterday’s failed rally and rejection of 1.1050+ levels. Support in the low 1.10s is holding but momentum is tilting risks towards a bit more softness and a test of supports in the high 1.09s.”

• EUR/USD exhibits uncertainty near 1.1000 ahead of the ECB’s policy decision.
• The ECB is expected to cut the Rate On Deposit Facility by 25 bps to 3.5%.
• Sticky US inflation data cements Fed’s 25 bps interest rate cut prospects for next week’s policy meeting.

EUR/USD struggles near more than a three-week low, around 1.1000 in Thursday’s European session. The major currency pair remains on tenterhooks, with investors focusing on the European Central Bank’s interest rate decision, which will be announced at 12:15 GMT. The ECB is widely anticipated to cut the Rate On Deposit Facility by 25 basis points (bps) to 3.5%.

This will be the second interest rate cut by the ECB in its current policy easing cycle, which it started in June after gaining confidence that inflationary pressures in the Eurozone will return to the central bank’s target of 2% in 2025. The ECB left its key borrowing rates steady in July as officials seemed worried that an aggressive monetary stance could revamp price pressures again.

Market speculation for the ECB reducing interest rates on Thursday strengthened due to a sharp decline in Eurozone price pressures and growing risks to Germany’s economic growth, the largest nation of the old continent. The German economy contracted by 0.1% in the second quarter of the year and is exposed to a recession due to a poor demand environment.

Given that the ECB is almost certain to cut interest rates again on Thursday, investors will keenly focus on cues about the interest rate cut path. “The ECB is unlikely to offer enough information through forward guidance or new economic forecasts to justify another rate cut in October,” “Our house view remains 25bp rate cuts today and December 12”, said Chris Turner, analyst at ING.

Daily digest market movers: EUR/USD remains on the back foot as US Dollar posts fresh weekly high

• EUR/USD remains under pressure as the US Dollar (USD) refreshes its weekly high during European trading hours on Thursday. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rises to nearly 101.80. The Greenback gains further as signs of stickiness in the United States (US) Consumer Price Index (CPI) data for August forced traders to pare bets supporting the Federal Reserve (Fed) to start reducing interest rates this month aggressively.
• Wednesday’s CPI data showed that the annual core inflation – which excludes volatile food and energy prices – rose by 3.2%, as expected. The monthly core CPI rose by 0.3%, faster than estimates and the prior release of 0.2%. However, the annual headline CPI grew by 2.5%, slower than the expected 2.6% and July’s print of 2.9% due to lower energy prices. Historically, Fed officials give more weightage to core inflation as it excludes those volatile items, which are guided by global and environmental forces.
• The sticky US core inflation data cemented market expectations for the Fed to begin reducing its key borrowing rates gradually. According to the CME FedWatch tool, the probability of the Fed reducing interest rates by 50 basis points (bps) to 4.75%-5.00% in September has diminished to 13% from 40% a week ago.
• In Thursday’s session, market participants will focus on the US Producer Price Index (PPI) data for August and the Initial Jobless Claims data for the week ending September 6, which will be published at 12:30 GMT. The significance of the jobless claims data has increased as recent comments from an array of Fed officials signal that the central bank has become more concerned about reviving job growth.

Technical Analysis: EUR/USD hovers near 1.1000

EUR/USD trades at make or a break near 1.1000 ahead of the ECB’s interest rate policy decision. The pair has corrected to near the upper line of a Rising Channel formation in the daily timeframe, from where it delivered a breakout on August 14, which resulted in a sharp upside move. The 20-day Exponential Moving Average (EMA) near 1.1047 acts as a major resistance for the Euro bulls.

The 14-day Relative Strength Index (RSI) falls further below 50.00, suggesting that the near-term outlook is uncertain.

The pair continues to hold the psychological level of 1.1000. A downside move below the same would drag the asset toward the July 17 high near 1.0950. On the upside, last week’s high of 1.1155 and the round-level resistance of 1.1200 will act as major barricades for the Euro bulls. 

ECB policy decision is due today (815pm SG time) followed by Lagarde’s press conference (845pm SGT). Softer CPI prints out of Euro-area, Germany and Spain and softer mfg PMI readings added to expectation that ECB should be on course to lower rate again, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

Rate cut decision is more or less a done deal

“Markets have priced in 25bp cut at this meeting and about 38bp cut for remainder of the year (another 1.5 cut). While a rate cut decision is more or less a done deal, focus is on Lagarde’s press conference and staff macroeconomic projection. So far, ECB officials have not been outright dovish, and officials seemed to posture for a more gradual pace when it comes to policy easing.”

“Potentially, ECB may even turn out to be a non-event if officials reiterate that policy is not on a preset cycle and policy making remains data dependent. EUR was last seen at 1.1010 levels. Bearish momentum on daily chart intact while RSI fell. Risks are skewed to the downside for now.”

“Support at 1.0970 (50 DMA, 38.2% fibo retracement of 2024 low to high), 1.09 (50% fibo). Resistance at 1.1060 (23.6% fibo), 1.1080 (21 DMA).”

• EUR/USD holds steady above the 1.1000 mark as traders keenly await the ECB policy decision.
• Reduced bets for a more aggressive Fed easing underpin the USD and cap gains for the major. 
• Traders seem reluctant ahead of the key central bank event risk and the release of the US PPI. 

The EUR/USD pair struggles to gain any meaningful traction during the Asian session on Thursday and oscillates in a narrow band, just above the 1.1000 psychological mark, or a four-week low touched the previous day. Traders seem reluctant and opt to wait for the highly-anticipated European Central Bank (ECB) policy meeting before positioning for the next leg of a directional move.

The ECB is widely expected to lower interest rates by 25 basis points (bps) amid signs of cooling inflation in the Eurozone. The bets were reaffirmed by the data showing that the German Consumer Price Index (CP) print fell to its lowest level in over three years in August and touched the ECB's 2% target. This, in turn, undermines the shared currency and acts as a headwind for the EUR/USD pair amid a modest US Dollar (USD) strength. 

The US CPI report released on Wednesday indicated that consumer prices in the US are easing overall. The core CPI, however, suggested that the underlying inflation remains sticky and dashed hopes for a larger rate cut by the Federal Reserve (Fed) next week. This is reinforced by an uptick in the US Treasury bond yields and lifts the USD Index (DXY), which tracks the buck against a basket of currencies, closer to the monthly peak. 

That said, the markets have fully priced in the prospects for an imminent start of the Fed's policy easing cycle and a 25 bps rate cut at the end of the September 17-18 FOMC meeting. This, along with the upbeat market mood, caps any further appreciating move for the safe-haven Greenback. This should continue to offer some support to the EUR/USD pair heading into the key central bank event risk and warrants caution for bearish traders. 

Investors might also prefer to wait for the ECB's updated economic projections, which, along with ECB Christine Lagarde's comments, will influence the Euro. Apart from this, the release of the US Producer Price Index (PPI) might provide a fresh impetus to the EUR/USD pair and produce some meaningful trading opportunities later during the North American session.

• EUR/USD dips after US Core CPI rises 0.3% MoM, reinforcing Fed rate cut expectations of 25 bps.
• ECB expected to cut rates by 25 bps this week amid slowing EU economic data and Germany’s inflation drop to 1.9% YoY.
• ECB’s post-September monetary policy decisions could become more complex as inflation components remain sticky.

The Euro is set to end Wednesday’s session with minuscule losses against the Greenback, dropping 0.04% after the latest US inflation report showed that the core Consumer Price Index (CPI) stalled in August. The EUR/USD trades at 1.1014 after hitting a daily high of 1.1055.

EUR/USD slips as traders await ECB's upcoming rate decision

Wall Street ended the session on the front foot, while the Greenback finished firm on the back of an uptick in the US Core Consumer Price Index (CPI). August’s Core CPI rose 0.3%, MoM, up from 0.2% in the previous month, exceeding estimates. The rest of the inflation figures, namely headlines in annual and monthly statistics and yearly core CPI, were aligned with estimates.

The EUR/USD decline was capped by the European Central Bank (ECB) monetary policy decision looming, as the pair touched a daily low of 1.1001, bouncing immediately toward the 1.1010-1.1020 area.

Another reason that weighed on the EUR/USD was that money market futures traders trimmed their bets for a 50 basis points (bps) Fed rate cut next week, from around 40% to 15%, while 25 bps increased from 66% to 85%.

The Eurozone (EU) economic docket will feature the ECB’s decision ahead of the week. The ECB is expected to cut rates by 25 bps after Germany’s inflation hit 1.9% YoY, while PMI readings suggest an ongoing economic slowdown. Despite that, ECB hawks are expected to push back as some inflation components are stickier than expected.

Regarding forward guidance, sources cited by Reuters noted that the ECB’s monetary policy decisions after September would be more complicated.

Across the pond, the US economic docket will feature the release of the latest Initial Jobless Claims report for the week ending September 7, along with the release of the Producer Price Index (PPI).

EUR/USD Price Forecast: Technical outlook

The EUR/USD is neutrally biased, though it remains above the 1.1000 figure, which is ahead of the ECB’s decision. The momentum shifted to bearish, as seen in the Relative Strength Index (RSI), though its slope aims upward.

If the EUR/USD rallies past the September 11 peak at 1.1054, that would sponsor a move to the 1.1100 mark. Conversely, if the pair tumbles below 1.1000, the bulls’ first line of defense would be the 50-day moving average (DMA) at 1.0967, followed by the July 17 swing high turned support at 1.0948.

EUR/USD is slightly firmer, with spot pricing marked up in a reflection of the generally soft tone of the USD, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

Scope for gains remains limited ahead of ECB Thursday

“The Euro (EUR) is unlikely to shine ahead of Thursday’s ECB policy decision. A 25bps rate cut is expected and fully priced in but the outlook for rates that is perhaps more important for the near-term direction of rates. Markets are pricing in 64bps of total easing between now and the end of the year. That is a little quicker than the one cut per quarter pace that the ECB seems to be operating on.”

“Intraday price action suggests a low/ reversal formed around this week’s 1.1015 low (bullish “morning star” pattern on the 6- hour chart). But gains have stalled in the mid-1.10s and short-term trend momentum signals are still reading bearish for the EUR. Gains through 1.1070/75 would give the EUR a little more intraday momentum. Key short-term support is 1.1015 now.”

• EUR/USD is rising as the US Dollar weakens following the Trump-Harris televised debate. 
• The consensus was that Vice President Kamala Harris came out better after the debate. 
• USD is falling because of the lower chance Trump will be able to implement Dollar-friendly policies. 

EUR/USD is exchanging hands in the 1.1040s, trading higher on Wednesday amid a broad-based weakening in the US Dollar (USD) following the Trump-Harris televised presidential election debate. 

Most analysts agree that Vice President Kamala Harris came out on top during the debate, and a recent poll from the BBC showed that she is ahead with 47% versus former President Donald Trump’s 43%. 

The US Dollar (USD) is weakening – and as a result EUR/USD is rising – because one of Trump’s policies is to protect the US Dollar’s status as the world’s reserve currency. This includes penalizing countries who refuse to trade in USD by imposing tariffs on their goods. The policy is a response to the growing influence of the BRICS trading bloc and its policy of de-dollarizing the global economy. 

EUR/USD rises as investors debate chance of jumbo Fed rate cut

EUR/USD is further strengthening as investors continue to see a sizable chance of the US Federal Reserve (Fed) cutting interest rates by a larger-than-standard 50 basis points (bps) at its next meeting on September 17-18. Whilst a 25 bps (0.25%) cut is already expected, the probabilities of a larger 50 bps “jumbo cut” currently stand at around 30% according to the CME FedWatch tool, which bases its predictions on the price of 30-day fed funds futures. A double-dose 50 bps cut would weigh on USD by reducing foreign capital inflows, but would be bullish for EUR/USD. 

US inflation data on tap

Wednesday sees the release of US Consumer Price Index (CPI) data for August, which would normally influence Fed rate-cut expectations. However, analysts vary in the extent to which they expect the data to have an impact – some say inflation has fallen so low now that it is irrelevant. 

“The (CPI) figure is no longer as overwhelmingly important as it was a few months ago,” says Ulricht Leutchmann, FX Analyst at Commerzbank. “The fight against inflation has seemingly been won. In the last three months, core consumer price inflation was a meager 1.6% (annualized) – well below levels that would be compatible with the Fed's target,” he adds. 

Elias Haddad, Senior Markets Strategist at Brown Brothers Harriman (BBH), however, says: “Higher than expected US inflation in August can reduce the probability of a jumbo Fed funds rate cut in September and underpin a firmer USD.” 

Deutsche Bank’s Jim Reid, meanwhile, makes the point that an important deflationary factor is the steep fall in crude Oil prices over recent days, with WTI crude Oil now trading in the mid $60s per barrel. “From the Fed’s perspective, one trend that’s helping to remove inflationary pressures has been the sharp decline in Oil prices over recent weeks,” he says in his “Early Morning Reid.”

ECB meeting in focus

EUR/USD upside is likely to be limited, however, by growth concerns in the Eurozone. Germany, in particular, is suffering from a much-publicized slowdown in manufacturing, especially in its key automobile sector, due to foreign competition. 

The European Central Bank (ECB) is scheduled to conclude its policy meeting on Thursday, and the consensus expectation is for the bank to announce a 25 bps cut to its deposit facility rate in order to help stimulate growth. The deposit facility rate (DFR) is the rate it pays banks on the money they deposit with the ECB. Such a cut would bring it down from 3.75% to 3.50%. 

Given the ECB has already announced plans to narrow the spread between the DFR and the main refinancing operations rate (MRO) from 50 bps to 15 bps (from September 18 onwards), the implication is that it will also slash the MRO – its headline rate – at Thursday’s meeting. Given the MRO currently sits at 4.25%, narrowing the spread with the DFR to only 15 bps would imply cutting the MRO by 0.60% to bring it down to 3.65%.  

Although the changes have already been telegraphed to the market, there is still a risk the Euro could weaken after the announcement. However, it is the updated macroeconomic projections that could provide the most volatility, with a risk the ECB could cut its growth forecasts. Such a move would weigh on EUR/USD. 

“Sluggish Eurozone economic activity suggests the risk is the ECB tweaks lower its inflation and real GDP growth forecasts. This can lead to a downward adjustment to Eurozone interest rate expectations against EUR,” says Elias Haddad, Senior Markets Strategist at Brown Brothers Harriman (BBH).    

Technical Analysis: EUR/USD continues posting lower lows

EUR/USD has broadly declined since peaking at 1.1202 on August 26. Despite a reaction higher between September 3-6, the pair has continued posting lower lows, most recently on Wednesday, when it fell to 1.1017. The pair is, therefore, probably in a downtrend and, since “the trend is your friend,” it could be argued the odds favor lower prices to come, although the downtrend is not strong. 

EUR/USD 4-hour Chart 

A break below 1.1017 would provide added confirmation of more downside, although it is now not far until the price reaches 1.1000 – a whole number and key psychological support level. 

Further weakness could see the pair fall to the Fibonacci 0.618 retracement of the August rally at 1.0941, where it would also likely find firm support. 

At the same time, risks of a recovery remain. The Relative Strength Index (RSI), for example, has risen sharply from the overbought zone, giving a buy signal, and it is still possible the pair could recover back up to the 1.1150 line of key resistance highs, if the counter-trend reaction currently underway persists.

Scope for the Euro (EUR) to test 1.0995 before the risk of recovery increases. In the linger run, EUR is likely to continue to weaken; the next level to watch below 1.0995 is at 1.0960, UOB Group FX analysts Quek Ser Leang and Peter Chia note.

Set to fall to 1.0960 below 1.0995

24-HOUR VIEW: “Yesterday, we held the view that EUR could break below last week’s low of 1.1025. We were also of the view that ‘the next support at 1.0995 could be out of reach for now.’ We were not wrong as EUR dropped to 1.1014 before closing at 1.1019 (-0.14%). While downward momentum has only increased slightly, there is scope for EUR to test 1.0995 before the risk of a recovery increases. The next major support at 1.0960 is unlikely to come under threat. Resistance levels are at 1.1045 and 1.1065.”

1-3 WEEKS VIEW: “Two days ago (09 Sep, spot at 1.1085), we highlighted that EUR could retest the 1.1025 level. Yesterday (10 Sep, spot at 1.1035), we indicated that ‘if EUR breaks below 1.1025, it could decline further to 1.0995.’ EUR then fell, reaching a low of 1.1014. While there has been no significant increase in momentum, EUR is likely to continue to weaken. The next level to watch below 1.0995 is at 1.0960. Overall, only a breach of 1.1085 (‘strong resistance’ level was at 1.1105 yesterday) would mean that EUR is not weakening further.”

• EUR/USD gains ground ahead of the US inflation data release scheduled on Wednesday.
• The US Dollar depreciates as Treasury bonds extend decline amid rising odds of a Fed rate cut in September.
• Traders anticipate that the ECB will implement a 25 basis points rate cut at Thursday's meeting.

EUR/USD breaks its three-day losing streak, trading around 1.1050 during Wednesday’s Asian session. The upside of the EUR/USD pair is attributed to the subdued US Dollar (USD) ahead of the US Consumer Price Index (CPI) data scheduled to be released later in the North American hours. This inflation report may offer fresh cues regarding the potential magnitude of the Federal Reserve's (Fed) interest rate cut in September.

The US Dollar (USD) faces challenges as the US Treasury yields continue to decline. The US Dollar Index (DXY), which measures the value of the US Dollar against six other major currencies, halts its three-day winning streak. The DXY trades around 101.40 with 2-year and 10-year yields on US Treasury bonds standing at 3.57% and 3.62%, respectively, at the time of writing.

However, last week’s US labor market report raised uncertainty over the likelihood of an aggressive interest rate cut by the Federal Reserve (Fed) at its September meeting. According to the CME FedWatch Tool, markets are fully anticipating at least a 25 basis point (bps) rate cut by the Federal Reserve at its September meeting. The likelihood of a 50 bps rate cut has slightly decreased to 31.0%, down from 38.0% a week ago.

The Euro received downward pressure from the recent German inflation data. Harmonized Index of Consumer Prices (HICP) maintained a 2.0% year-on-year increase in August, in line with expectations. The monthly index showed a steady decline of 0.2%, also as forecasted. Similarly, the Consumer Price Index (CPI) remained stable at 1.9% year-on-year in August, meeting market expectations.

Traders anticipate that the European Central Bank (ECB) will lower interest rates to 4.0% by implementing a 25 basis points rate cut at its upcoming policy meeting on Thursday.

• German HICP inflation falls to 2%, increasing the likelihood of further ECB rate cuts and downward revisions to growth forecasts.
• ECB expected to lower rates by 25 bps while maintaining a restrictive policy stance to combat inflation risks.
• US CPI data could influence Fed rate expectations, with a 70% chance of a 25 bps cut and 30% for a 50 bps cut.

The EUR/USD retreated on Tuesday after the latest inflation report in Germany, which increased the likelihood of another interest rate cut by the European Central Bank (ECB). At the time of writing, the EUR/USD trades at 1.1021, virtually unchanged, as Wednesday’s Asian session begins.

EUR/USD retreats to 1.1021 as lower German inflation fuels expectations of a 25 bps ECB rate cut on Thursday

Wall Street ended the session with decent gains, while the Greenback is almost flat. Data during the European session witnessed German inflation falling to its lowest level in over three years as the Harmonized Index of Consumer Prices (HICP) hit 2%, the ECB’s goal.

On Thursday, the ECB is expected to lower interest rates by a quarter of a percentage point, yet according to analysts at BBH, the central bank would emphasize that “it will keep policy sufficiently restrictive for as long as necessary."

Besides that, the ECB is expected to update its economic projections, which include a downward revision of economic growth and inflation. Money market traders continue to price in 50 to 75 basis points of cuts toward the end of the year.

Ahead of the week, August's US Consumer Price Index (CPI) is expected to dip towards the Fed’s 2% goal. A lower-than-expected CPI report could increase the odds of the Federal Reserve easing rates by 50 basis points, though most analysts expect the Fed to adjust policy gradually.

The CME FedWatch Tool shows that the odds for a 25 bps rate cut are 70%, while for a 50 bps rate cut, they are 30%.

EUR/USD Price Forecast: Technical outlook

From a technical standpoint, the EUR/USD remains neutral with an upward bias. However, a decisive break below the September 3 low of 1.1026 could open the door to further downside. Key support levels, such as the 1.1000 mark, will be exposed, followed by the 50-day moving average (DMA) at 1.0958. A breach of this level could lead to a test of the confluence of the 100 and 200-DMAs around 1.0867/58, before targeting the August 1 swing low at 1.0777.

For a bullish resumption, buyers would need to lift the pair above the September 9 high at 1.1091.

The Euro (EUR) could break 1.1025; the next support at 1.0995 could be out of reach for now. In the longer run, if EUR breaks below 1.1025, it could decline further to 1.0995, UOB Group FX strategists Quek Ser Leang and Peter Chia note.

Below 1.1025 EUR may test 1.0995

24-HOUR VIEW: “Last Friday, EUR traded choppily. Yesterday, we indicated that ‘despite the choppy price movements, the underlying tone seems to have softened somewhat.’ We expected EUR to ‘edge lower, possibly testing the 1.1055 level.’ However, we pointed out that ‘last week’s low of 1.1025 is unlikely to come into view.’ Our expectations were not wrong, even though EUR fell more than expected, reaching a low of 1.1033. Given that downward momentum has increased further, EUR is likely to break 1.1025 today. The next support at 1.0995 could be out of reach for now. Resistance levels are at 1.1055 and 1.1075.”

1-3 WEEKS VIEW: “The following is from our update yesterday (09 Sep, spot at 1.1085): EUR seems to be under mild downward pressure, and there is room for it to retest last week’s low of 1.1025. At this time, the chance of a sustained break below this level is not high. The mild downward pressure is intact provided that 1.1160 is not breached. EUR subsequently fell to a low of 1.1033, closing on a soft note at 1.1034 (-0.44%). The price action has resulted in a further increase in downward pressure. From here, if EUR breaks below 1.1025, it could decline further to 1.0995. On the upside, the ‘strong resistance’ level has moved lower to 1.1105 from 1.1160.”

• EUR/USD remains below 1.1050 as investors turn cautious ahead of the US inflation for August and the ECB policy announcement.
• The ECB is expected to cut its key borrowing rates by 25 basis points (bps).
• US inflation data will influence market speculation for the Fed’s potential interest rate cut size.

EUR/USD struggles to gain ground near its weekly low of 1.1030 in Tuesday’s European session. The major currency pair remains under pressure as investors turn cautious ahead of the United States (US) Consumer Price Index (CPI) data for August and the European Central Bank’s interest rate policy, which will be published on Wednesday and announced on Thursday, respectively.

Investors will keenly focus on the US consumer inflation data as it is just a week before the Federal Reserve’s (Fed) monetary policy meeting. The inflation data will provide fresh cues about whether the Fed will start its policy-easing process gradually or aggressively. The importance of the inflation data in getting more insights about the magnitude of the Fed interest rate cut has increased significantly as the US Nonfarm Payrolls (NFP) data for August failed to make a clear case for the Fed’s likely interest rate cut size.

Earlier, market participants remained worried that the Fed could opt for a large interest rate cut in September due to a sharp slowdown in the US job growth, indicated by the US NFP report for July, which prompted fears for the economy entering a recession. However, Friday’s NFP report showed that the labor market health is not as bad as it appeared last month.

Economists expect the annual headline CPI to have grown at a slower pace of 2.6%, the lowest since March 2021, from July’s reading of 2.9%. The core inflation – which excludes volatile food and energy prices – is expected to have risen steadily by 3.2%. Both monthly headline and core inflation are projected to have increased by 0.2%.

Later this week, investors will focus on the US Producer Price Index (PPI) data for August, which will be published on Thursday.

Daily digest market movers: EUR/USD trades with caution as ECB policy takes centre stage

• EUR/USD trades cautiously as the Euro (EUR) exhibits a subdued performance, with investors focusing on the ECB’s interest rate policy. The ECB is widely anticipated to cut interest rates by 25 basis points (bps) on Thursday. This will be the second interest rate cut decision by the ECB in its current policy-easing cycle, which the bank started in June but left borrowing rates unchanged in July.
• Though investors seem confident about the ECB resuming its policy-easing process, market participants will majorly focus on the monetary policy statement and ECB President Christine Lagarde’s press conference to get cues about the likely policy action for the remainder of the year.
• Lagarde is expected to deliver a dovish interest rate guidance as the annual Harmonized Index of Consumer Prices (HICP) of the Eurozone’s largest nation, Germany, has returned to the bank’s target of 2% in August. Also, German economic growth is vulnerable due to the poor demand environment. The scenario of declining inflation and worsening economic conditions paves the way for an expansionary monetary policy stance.
• Currently, financial market participants expect that the ECB will cut interest rates one more time in the last quarter of this year.

Technical Analysis: EUR/USD trades below 1.1050

EUR/USD steadies below 1.1050 in Tuesday’s European trading hours. The major currency pair has come under pressure after failing to sustain above the crucial resistance of 1.1100. The near-term outlook of the shared currency pair is uncertain as it continues to trade below the 20-day Exponential Moving Average (EMA), which trades around 1.1060.

The 14-day Relative Strength Index (RSI) falls further to 50.00, suggesting a lack of momentum and a sideways trend.

The pair is expected to find support near the psychological level of 1.1000. On the upside, last week’s high of 1.1155 and the round-level resistance of 1.1200 will act as major barricades for the Euro bulls. 

• EUR/USD ticks higher following an intraday dip to a one-week low, albeit lacks follow-through.
• Reduced bets for a 50 bps Fed rate cut continue to underpin the USD and act as a headwind.
• Dovish ECB expectations further cap gains ahead of the key US data/central bank event risks.

The EUR/USD pair recovers a few pips from a one-week low, around the 1.1030-1.1025 area touched during the Asian session on Tuesday and for now, seems to have snapped a two-day losing streak. Any meaningful appreciating move, however, still seems elusive in the wake of some follow-through US Dollar (USD) buying.

Investors have been scaling back their bets for a larger, 50 basis points (bps) interest rate cut by the Federal Reserve (Fed) in September following the release of mixed US jobs report on Friday. This assists the Greenback in attracting some buyers for the third successive day and climbing back closer to the monthly peak touched last week, which, in turn, is seen acting as a headwind for the EUR/USD pair. 

The shared currency's relative underperformance could further be attributed to growing market expectations that the European Central Bank (ECB) will cut interest rates again in September in the wake of declining inflation in the Eurozone. This might further contribute to capping the EUR/USD pair, though the downside is likely to remain cushioned ahead of this week's key data/central bank event risks.

The latest US consumer inflation figures are due for release on Wednesday, followed by the US Producer Price Index (PPI) on Thursday. This will play a key role in influencing market expectations about the size of the Fed rate cut move later this month, which, in turn, will drive the USD demand. Apart from this, the crucial ECB policy decision on Thursday will provide a fresh directional impetus to the EUR/USD pair.

In the absence of any relevant market-moving economic releases on Tuesday, either from the Eurozone or the US, the aforementioned fundamental backdrop warrants caution for bulls. Hence, it will be prudent to wait for strong follow-through buying before confirming that the recent corrective pullback from the 1.1200 round-figure mark, or over a one-year high touched in August has run its course.

• EUR/USD extends losses after clearing 1.1100 support, with ECB expected to cut rates by 25 bps on September 12.
• Market sentiment remains cautious as analysts anticipate the ECB to revise economic growth and inflation projections downward.
• US CPI report this week could influence Fed rate cut expectations, with 70% odds for a 25 bps cut and 30% for 50 bps.

The Euro registered losses of 0.44% on Monday as the shared currency extended its fall after clearing the 1.1100 support level. Expectations that the European Central Bank (ECB) will slash rates at the September 12 meeting weighed on the EUR/USD, which trades at 1.1036, virtually unchanged as Tuesday’s Asian session begins.

EUR/USD drops 0.44%, as markets brace for ECB rate cuts, key US inflation

Wall Street closed Monday’s session in the green, a reflection of an upbeat risk appetite ahead of a week that will feature the release of inflation data in the United States (US). Across the pond, most analysts estimate the ECB will cut rates by 25 basis points.

Analysts at BBH expect the ECB to maintain its cautious easing guidance that “it will keep policy sufficiently restrictive for as long as necessary " and remain data-dependent.

The ECB is expected to unveil its economic projections, which include a downward revision of economic growth and inflation. Money market traders continue to price in 50 to 75 basis points of cuts toward the end of the year.

Data-wise, the Eurozone (EU) economic docket will feature German Inflation data on Tuesday, followed by the EU’s Industrial Production on Friday.

The New York Fed Consumer Inflation Expectations were anchored to the 3% threshold on the US front. Ahead of the week, the US Consumer Price Index (CPI) for August is expected to dip towards the Fed’s 2% goal.

If CPI edges lower, the odds of the Federal Reserve cutting its rate by 50 basis points are increased. Otherwise, gradual adjustments to monetary policy are already priced in.

The CME FedWatch Tool shows that the odds for a 25 bps rate cut are 70%, while for a 50 bps rate cut, they are 30%.

EUR/USD Price Forecast: Technical outlook

From a technical standpoint, the EUR/USD remains neutral to upward bias, though a decisive break below the September 3 low of 1.1026 might open the door for further downside. Key support levels, like the 1.1000 mark, will be exposed, followed by the 50-day moving average (DMA) at 1.0958. A breach of the latter and the pair might test the confluence of the 100 and 200-DMAs at around 1.0867/58, before diving to August 1 swing low at 1.0777.

For a bullish resumption, buyers must lift the pair above the September 9 high at 1.1091.

Reflecting the movements in bond yields, there were a lot of gyrations in EUR/USD on Friday firstly on the back of the US payrolls report and then in response to the remarks of Fed speakers, Rabobank’s Senior FX Strategist Jane Foley notes.

Scope for dips back to 1.10 in the weeks ahead

“In the end, EUR/USD ended the session very close to where it had been positioned 24 hrs before. As the market turns its attention to this week’s events, which include the key US CPI inflation release, EUR/USD is trading a little lower. The market had hoped that last week’s US jobs report would provide clarity over whether the Fed would opt for a 50-bps rate cut later this month, rather than 25 bps. While that debate continues to rage, market pricing is still veering away from pricing in the bigger move, which is allowing the USD a little support.”

“It is widely accepted that sticky services sector inflation will temper the pace of ECB rate cuts. That said, given the backdrop of moderating inflation pressures in Europe and the need for growth in Germany, a stronger EUR could in theory hasten the pace of ECB rate cuts. In turn this should cap upside potential for EUR/USD. Consequently, we do not see EUR/USD trading much higher than 1.12 in the coming months. We continue to see scope for dips back to 1.10 in the weeks ahead.”

EUR/USD is drifting a little lower in quiet trade at the start of the week, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

ECB rate cut fully priced for Thursday

“There were no major data reports in the Eurozone this morning and EUR drift likely reflects a continuation of the USD correction seen as the dust settled around Friday US data.”

“Steady—so far—short-term EZ/US spreads (the 2Y gap is little changed around – 142bps this morning) suggest the EUR should remain supported on minor dips. A 25bps cut at Thursday’s ECB policy decision is fully priced in. Cautious guidance on the outlook might be modestly EUR-supportive.”

“A soft close Friday for the EUR leaves the daily chart tilting clearly negative via a bearish outside range session. Underlying trend signals remain bullish across the daily and weekly charts, however, which should help limit EUR losses in the short run at least. Weakness through last week’s low at 1.1025 may see a bit more drift to the mid/upper 1.09s. Resistance is 1.1075/85.”

Room for EUR to retest the 1.1025 level; the chance of a sustained break below this level is not high at this time, UOB Group FX strategists Quek Ser Leang and Alvin Liew note.

EUR is set to retest the 1.1025 level

24-HOUR VIEW: “In NY trade last Friday, EUR traded choppily between 1.1064 and 1.1155, closing at 1.1083 (-0.24%). Despite the choppy price movements, the underlying tone seems to have softened somewhat. Today, EUR is expected to edge lower, possibly testing the 1.1055 level. Last week’s low of 1.1025 is unlikely to come into view. Resistance is at 1.1115 and 1.1135.”

1-3 WEEKS VIEW: “EUR seems to be under mild downward pressure, and there is room for it to retest last week’s low of 1.1025. At this time, the chance of a sustained break below this level is not high. The mild downward pressure is intact provided that 1.1160 is not breached.”

• EUR/USD dives below 1.1050 as the US Dollar strengthens on expectations that the Fed will opt for a small-size interest rate cut this month.
• Investors await the US CPI on Wednesday for fresh guidance on interest rates.
• The ECB is expected to cut interest rates this week.

EUR/USD extends its downside below 1.1050 in Monday’s European session. The major currency pair declines as the US Dollar (USD) strengthens after mixed cues over current labor market health from Friday’s United States (US) Nonfarm payrolls (NFP) report for August, which diminished market expectations for the Federal Reserve (Fed) to reduce interest rates aggressively this month.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, jumps to near 101.50.

The official employment report showed that fresh payrolls were fewer than expected, the Unemployment Rate fell expectedly, and the Average Hourly Earnings, a key measure of wage growth, grew at a faster-than-projected pace. 

Market participants were mainly focusing on the employment numbers as the Fed appeared to be confident that price pressures are on track to return to the desired central banks’ rate of 2%. Slower job demand increased evidence that the US economic growth is moderating. Still, the pace of decline was lesser than July’s impression, which diminished recession fears and the Fed’s large rate-cut bets.

According to the CME FedWatch tool, the probability of the Fed reducing interest rates by 50 basis points (bps) to 4.75%-5.00% in September is 27%, while the rest favors a 25-bps interest rate cut.

Going forward, the US Dollar is expected to witness more volatility this week as the US Consumer Price Index (CPI) data for August is lined up for release on Wednesday. 

Daily digest market movers: EUR/USD drops as US Dollar gains sharply

• EUR/USD performs weakly against its major peers on Monday, with investors focusing on the European Central Bank (ECB) policy decision, which will be announced on Thursday. The ECB is expected to cut its key borrowing rates again by 25 basis points (bps). This would be the second dovish interest rate decision by the ECB in its current policy-easing cycle, which it started in the June meeting but kept interest rates unchanged in July.
• The ECB is almost certain to reduce interest rates this week as Eurozone price pressures have significantly contained and growing uncertainty over the economic outlook. Eurozone’s preliminary headline Harmonized Index of Consumer Prices (HICP) fell to 2.2% in August, the lowest reading since July 2021. The Eurozone economic prospects are poor due to subdued demand from domestic and overseas markets. 
• The German economy has been exposed to a technical recession, given that the nation’s growth contracted in the second quarter of this year, and the outlook for the third quarter remains uncertain. 
• Meanwhile, ECB policymakers have also acknowledged growing weakness in the German economy and see more interest rate cuts as appropriate in the remainder of the year. Last week, ECB board member Piero Cipollone said, "There is a real risk that our stance could become too restrictive."
• On the economic data front, Eurozone Sentix Investor Confidence has worsened further to -15.4 in September from -13.9 in August. This appears to be the outcome of the deteriorating economy’s health amid a slowdown in the German economy.

Technical Analysis: EUR/USD slips below 1.1050

EUR/USD dips below 1.1050 in Monday’s European trading hours. The major currency pair weakens after failing to sustain above the crucial resistance of 1.1100. The near-tern outlook of the shared currency pair has become uncertain as it has dropped below the 20-day Exponential Moving Average (EMA), which trades around 1.1060.

The 14-day Relative Strength Index (RSI) falls further to 50.00, suggesting a lack of bullish momentum.

The pair is expected to find support near the psychological level of 1.1000. On the upside, last week’s high of 1.1155 and the round-level resistance of 1.1200 will act as major barricades for the Euro bulls.