CFD Trading Rate Euro vs US Dollar (EURUSD)

Euro (EUR) further slipped amid softer CPI prints out of Euro-area, Germany and Spain, ING’s FX strategist Chris Turner notes.

EUR/USD to trade lower

“This adds to expectation that ECB may lower rate again at its upcoming meeting on 12 Sep. This week, focus is on mfg PMI (today), services PMI, PPI (Wed), retail sales (Thu) and GDP (Fri). ECBspeaks this week is largely quiet with Nagel tomorrow, Villeroy on Thu.”

“It is perhaps worth mentioning that ECBspeaks lately have not been outright dovish and officials seemed to posture for a more gradual pace when it comes to policy easing. That said, markets have priced in a 25bp cut at this meeting and about 37bp cut for remainder of the year (another 1.5 cut). Another series of underwhelming data print could move the needle for markets to price in a more dovish ECB and for the EURO to trade lower.”

“EUR was last at 1.1070 levels. Daily momentum turned mild bearish while RSI fell. Support at 1.1040 (21 DMA), 1.10, 1.0930 (61.8% fibo retracement of 2024 high to low). Resistance at 1.12 (recent high) and 1.1280 (2023 high).”

• EUR/USD strengthens near 1.1055 in Monday’s early European session.
• The pair maintains the positive view above the key 100-day EMA, but RSI indicator shows the neutral momentum.
• The first upside barrier emerges at 1.1185; the crucial support level is seen at 1.1000. 

The EUR/USD pair trades with mild gains around 1.1055, snapping the three-day losing streak during the early European session on Monday. The dovish stance of the US Federal Reserve (Fed) undermines the Greenback and provides some support to EUR/USD. 

Financial markets are now pricing in a nearly 70% odds of a 25 basis points (bps) rate cut by the Fed in September, while the chance of a 50 bps reduction stands at 30%, according to the CME FedWatch tool. The attention will shift to the US employment data on Friday for further insights about the potential rate cuts in September.

Technically, the bullish outlook of EUR/USD remains intact as the major pair holds above the key 100-day Exponential Moving Averages (EMA) on the daily timeframe. Nonetheless, further consolidation cannot be ruled out as the 14-day Relative Strength Index (RSI) hovers around the midline, suggesting the neutral momentum of the trend.

The immediate resistance level for the major pair emerges at 1.1185, the high of August 28. Further north, the next hurdle is seen at the upper boundary of the Bollinger Band at 1.1230. A decisive break above this level will see a rally to 1.1275, the high of July 18. 

In the bearish event, the potential downside support level is located at the 1.1000 psychological mark. A breach of this level will see a drop to 1.0950, the low of August 15. The additional downside filter to watch is near the 100-day EMA at 1.0893, followed by the lower limit of the Bollinger Band at 1.0863.  

EUR/USD daily chart

• EUR/USD gains ground as the Fed is expected to deliver at least a 25-basis point rate cut in September.
• The US Dollar received support from July's Personal Consumption Expenditures (PCE) Index data released on Friday.
• ECB Governing Council member Francois Villeroy de Galhau favors the central bank considering a rate cut in September.

EUR/USD breaks its three-day losing streak, trading around 1.1050 during the Asian session on Monday. The upside of the EUR/USD pair could be attributed to the tepid US Dollar (USD) following the dovish sentiment surrounding the US Federal Reserve (Fed). However, the US July's Personal Consumption Expenditures (PCE) Index might have provided support for the Greenback and limited the upside of the pair.

On Friday, the US Bureau of Economic Analysis reported that the headline Personal Consumption Expenditures (PCE) Price Index increased by 2.5% year-over-year in July, matching the previous reading of 2.5% but falling short of the estimated 2.6%. Meanwhile, the core PCE, which excludes volatile food and energy prices, rose by 2.6% year-over-year in July, consistent with the prior figure of 2.6% but slightly below the consensus forecast of 2.7%.

According to the CME FedWatch Tool, markets are fully anticipating at least a 25 basis point (bps) rate cut by the Fed at its September meeting. Federal Reserve Atlanta President Raphael Bostic, a prominent hawk on the FOMC, indicated last week that it might be "time to move" on rate cuts due to further cooling inflation and a higher-than-expected unemployment rate. FXStreet’s FedTracker, which gauges the tone of Fed officials’ speeches on a dovish-to-hawkish scale from 0 to 10 using a custom AI model, rated Kashkari’s words as neutral with a score of 5.6.

European Central Bank (ECB) Governing Council member Francois Villeroy de Galhau stated on Friday, according to Bloomberg, that there are "good reasons" for the central bank to consider cutting its key interest rates in September. Galhau suggested that action should be taken at the upcoming meeting on September 12, noting that it would be both fair and prudent to decide on a new rate cut.

• EUR/USD trimmed to the downside on Friday, extending into a three day down streak.
• EU inflation brought no surprises, US PCE inflation kept rate bets on balance.
• Coming up next week: Last US NFP jobs data print before next Fed rate call.

EUR/USD tilted further into the red on Friday, extending a downside move into a third straight day and dragging Fiber down to 1.1050 to round out the trading week. EU inflation figures released early Friday failed to impress anybody in particular, and US Personal Consumption Expenditure Price Index (PCE) didn’t stray far from forecasts, keeping broad-market bets on rate cuts aimed squarely at the Federal Reserve’s (Fed) next rate call on September 18.

US PCE figures for July didn’t deliver any notable surprises to round out the trading week. MoM US core PCE inflation held steady at 0.2%, as expected, but the YoY core PCE inflation figure held steady at 2.5% versus the anticipated move up to 2.6%. 

Rate markets are holding firmly to 30% odds of an initial double cut for 50 bps from the Federal Reserve (Fed) on September 18, with the remaining 70% leaning into a single quarter-point cut. Overall, rate traders are pricing in 100 bps in total cuts in 2024, according to CME’s FedWatch Tool.

With PCE inflation data out of the way and not giving any warning signs, the way is paved to next week’s Nonfarm Payrolls (NFP) print, one of the last key pieces of economic data standing in the way of the Fed and rate-cut-hungry markets. Next week will also open on a quiet note, with US exchanges slated to remain shuttered for the Labor Day holiday. Some Purchasing Managers Index (PMI) releases are also scattered throughout the trading week.

EUR/USD price forecast

A third downside has tilted Fiber firmly into a bearish pullback, and EUR/USD price action is already halfway to the nearest technical level at the 50-day Exponential Moving Average (EMA) rising through 1.0950. 

While EUR/USD is still trading firmly in bull country north of the 200-day EMA at 1.0855, bids have dropped the Fiber precipitously from yearly peaks reached earlier this week, and bearish momentum could develop some heat.

EUR/USD daily chart

Eurozone August CPI rose a preliminary 0.2% in the month and was 2.2% higher over the year, down from 2.6% in July and in line with expectations, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

EUR consolidates

“Core inflation eased a tenth to at 2.8% Y/Y from July’s read and services inflation rose to 4.2%, from 4%. Core and services inflation suggest a cautious approach to ECB rate cuts ahead. ECB Governor Muller said that confidence in a September rate cut (which is fully priced in) is growing but the policy path after that is 'less certain'.”

“Softer trends in the EUR may be developing. A soft close on the week suggests some developing reversal potential on the longer run charts. Intraday price action rather suggests the EUR is consolidating this week’s losses in a tight range, but the EUR is clearly having some trouble holding even minor gains to the 1.11 area for now.”

“Weakness through 1.1050/55 support may see the EUR edge back to 1.0990/00.” 

Euro (EUR) is likely to trade in a 1.1050/1.1125 range. In the longer run, upward momentum has largely dissipated, and EUR is expected to trade in a range between 1.1040 and 1.1200, UOB Group FX analysts Quek Ser Leang and Lee Sue Ann notes.

The 1.1040 support may become a magnet for EUR

24-HOUR VIEW: “After EUR fell sharply two days ago, we indicated yesterday that 'the sharp and swift drop seems to be overextended.' However, we were of the view that 'there is room for EUR to decline further to 1.1095 before stabilization is likely.' We highlighted that 'the major support at 1.1040 is unlikely to come under threat.' Although our view of a lower EUR was not wrong, it fell more than expected, reaching a low of 1.1054 before recovering. Conditions are severely oversold now, and EUR is unlikely to weaken much further. Today, EUR is more likely to trade in a 1.1050/1.1125 range.”

1-3 WEEKS VIEW: “We highlighted yesterday (29 Aug, spot at 1.1125) that upward momentum has largely dissipated. We expected EUR to trade in a range between 1.1040 and 1.1200. There is no change in our view. Looking ahead, as long as EUR does not break clearly below 1.1040, there is still chance for EUR to rise to 1.1200 later on. Conversely, if EUR breaks clearly below 1.1040, it could trigger a deeper pullback to 1.0890.”

• EUR/USD trades sideways below 1.1100 as investors await key inflation data from the Eurozone as well as the US.
• Soft German inflation boosted hopes of another ECB interest-rate cut in September.
• Upwardly revised US Q2 GDP slightly reduces the chances that the Fed will opt for a bigger rate cut.

EUR/USD trades in a very tight range below 1.1100 in Friday’s European session, with investors focusing on the Eurozone flash Harmonized Index of Consumer Prices (HICP) for August and the United States (US) Personal Consumption Expenditure Price Index (PCE) for July, which will be published at 09:00 GMT and 12:30 GMT, respectively.

The Eurozone HICP report is expected to show that the headline inflation decelerated sharply to 2.2% from 2.6% in July due to lower energy prices. In the same period, the core HICP – which excludes volatile components like food, energy, alcohol, and tobacco – is estimated to have grown by 2.8%, slower than the former release of 2.9%.

The preliminary inflation data is expected to influence market speculation for the European Central Bank's (ECB) September interest rate cuts and, more broadly, the policy-easing path for the remainder of the year. 

Financial market participants already seem to be confident that the ECB will cut its key borrowing rates in September again. The ECB pivoted to policy-normalization in June but left interest rates unchanged in August. Market expectations for ECB September rate cuts increased sharply after data released on Thursday showed that price pressures in the Eurozone’s largest nation, Germany, returned to 2% for the first time in more than three years. Also, the economy is exposed to a technical recession as it contracted by 0.1% in the second quarter of this year and its economic outlook is vulnerable. Other Eurozone economies, such as France or Spain, have also seen a significant inflation decline in August. 

"Fading inflationary pressure combined with fading growth momentum offers an almost perfect macro backdrop for another rate cut," said Carsten Brzeski, global head of macro at ING, in a note on Thursday.

The ECB is also expected to deliver an additional interest rate cut somewhere in the last quarter of this year.

Daily digest market movers: EUR/USD trades sideways ahead of key inflation data

• EUR/USD trades with caution as the US Dollar (USD) consolidates ahead of the US PCE inflation data for July. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades slightly below a fresh weekly high of 101.58.
• Investors await the US inflation data to get fresh cues about the likely monetary policy action by the Federal Reserve (Fed) in the September meeting. The PCE report is expected to show that year-over-year core inflation rose at a slightly faster pace of 2.7% from 2.6% in June, with monthly figures growing steadily by 0.2%.
• Currently, financial markets seem to be confident that the Fed will start reducing interest rates in September. However, traders remain split over the potential size by which the Fed will pivot to policy-normalization.
• According to the CME FedWatch tool, 30-day Federal Funds Futures pricing data shows that the likelihood of a probability of 50-basis points (bps) interest rate reduction in September is 33%, while the rest are favoring a cut by 25 bps.
• The likelihood of a bigger rate cut has fallen slightly after the US Bureau of Economic Analysis (BEA) reported that the pace at which the economy grew in the second quarter was higher than previously estimated. The agency reported that the economy grew at a robust pace of 3% on an annualized basis, against the preliminary estimates of 2.8%. 

Technical Analysis: EUR/USD consolidates below 1.1100

EUR/USD trades inside Thursday’s trading range after steading below the crucial resistance of 1.1100. The near-term outlook of the major currency pair is still firm as all short-to-long-term Exponential Moving Averages (EMAs) are sloping higher. Also, the major currency pair holds the breakout of the Rising Channel formation on a daily timeframe. 

The 14-day Relative Strength Index (RSI) has declined below 60.00 after turning overbought near 75.00.

On the upside, a recent high of 1.1200 and the July 2023 high at 1.1275 will be the next stop for the Euro bulls. The downside is expected to remain cushioned near the psychological support of 1.1000.

• EUR/USD trades stronger near 1.1080 in Friday’s early Asian session.  
• US GDP expanded more than expected in Q2. 
• Cooling inflation from Germany and Spain supports the case for an ECB rate cut in September. 

The EUR/USD pair recovers some lost ground around 1.1080, snapping the two-day losing streak on Friday during the early Asian session. However, the upside might be limited as traders might prefer to wait on the sidelines ahead of the German July Retail Sales and US July Personal Consumption Expenditure (PCE) Price Index.

The US Gross Domestic Product (GDP) growth rate rose at an annual rate of 3.0% in the second quarter (Q2), the Department of Commerce reported in its second estimate released on Thursday. The figure was better than the forecast of 2.8 and the initial estimate of 2.8%. 

The report suggested that the US could avoid recession and dampen the hope for a larger 50 basis-point (bp) rate cut in September by the Federal Reserve (Fed). This, in turn, provides some support to the US Dollar (USD). Financial markets are now pricing in nearly 66% of a 25 basis points (bps) rate cut in September, but the chance of a deeper rate cut stands at 34%, down from 36.5% before the US GDP data, according to the CME FedWatch Tool.

Across the pond, the Consumer Price Index (CPI) data from Germany and Spain showed that inflation looks to have cooled further in August, prompting the expectation of an interest rate cut by the European Central Bank (ECB) and undermining the Euro (EUR). ING’s global head of macroeconomics, Carsten Brzeski, said that the outcome was “great news for the ECB” and further stated that a slowing economy and cooling inflation make a  “perfect macro backdrop” for lower rates. Nonetheless, emphasized that service inflation isn't dead yet.

Weak August regional CPI readings from Germany alerted markets to the risk that the national data (8.00ET) will undershoot expectations (unchanged M/M and 2.1% Y/Y, down from 2.3% in July), Scotiabank’s Chief FX Strategist Shaun Osborne notes.

Weak German regional CPI data disapoints

“Soft data weighed on Eurozone short rates (compressing EZ/US 2Y spreads somewhat) and drove the EUR back through the 1.11 area before spot steadied.”

“The softer EUR tone evident this week this week has edged spot below short-term support (August rally bull trend) at 1.1100 today.”

“EUR losses are not showing signs of picking up below the figure at this point but the soft undertone could extend back to the mid-1.10s unless the EUR can regain 1.11+ in fairly quick order.”

• EUR/USD dives below 1.1100 as lower inflation in Spain and in six key German states prompts expectations of another ECB rate cut.
• Eurozone and German inflation are estimated to have slowed further in August.
• The US core PCE inflation data could influence market expectations for Fed rate-cut size in September.

EUR/USD faces a sharp sell-off, sliding below the round-level support of 1.100 in Thursday’s European session. The major currency pair extends its correction after some preliminary inflation data from Spain and six important German states showed that price pressures continued to abate in August, increasing bets of an upcoming interest-rate cut by the European Central Bank (ECB). Meanwhile, the US Dollar increased further above Wednesday’s high, with the US Dollar Index (DXY) – which tracks the Greenback’s value against six major currencies – rising to near 101.30.

The sharp recovery in the US Dollar suggests that investors are turning risk-averse with United States (US) Personal Consumption Expenditure Price Index (PCE) data for July on the horizon. The underlying inflation data is expected to influence market speculation for the likely size of Federal Reserve (Fed) interest-rate cuts in September.

The PCE inflation report is expected to show that the annual core inflation rose by 2.7% in July, faster than the 2.6% seen in June. Month-over-month, core PCE is estimated to have grown steadily by 0.2%.

In Thursday’s session, investors will keenly focus on the revised estimates of Q2 Gross Domestic Product (GDP) and the Initial Jobless Claims data for the week ending August 23 at 12:30 GMT. Q2 GDP revised estimated are unlikely to impact the US Dollar unless there comes a substantial change. In Europe, the preliminary August inflation data for overall Germany will be published at 12:00 GMT.

Investors will also focus on the Jobless Claims data as the Fed is now vigilant to downside risks to the labor market.. Fed Chair Jerome Powell vowed to support deteriorating labor market strength in his speech at the Jackson Hole (JH) Symposium.

Daily digest market movers: EUR/USD weakens on Euro’s broader underperformance

• EUR/USD extends its downside below the crucial support of 1.1100 in European trading hours. The shared currency pair weakens on the Euro’s (EUR) underperformance against its major peers as traders seem to be certain that the European Central Bank (ECB) will cut interest rates in September.
• A sharp slowdown in price pressures in Spain and six important German states has boosted ECB September rate cut bets. The Annual Harmonized Index of Consumer Prices (HICP) in Spain came in at 2.4%, the slowest in year-to-date (YTD).
• Firm speculation for ECB September rate cuts was already prompted by consistently easing Eurozone price pressures and its poor economic outlook, as suggested by the flash HCOB PMI report for August. However, the Eurozone Economic Sentiment Indicator, Industry Confidence, and Services Sentiment have come in better than expected in August. On the contrary, Consumer Confidence deteriorated to -13.5 from the estimates and the former release of -13.4.
• The ECB is also expected to deliver an additional rate cut somewhere in the last quarter of the year. A few ECB policymakers appear to be comfortable with the central bank reducing its key borrowing rates further this year.
• Dutch policymaker Klaas Knot said to a conference panel on Tuesday that "as long as our disinflation path still converges to a return to 2% inflation at or before the end of 2025, then I'm comfortable with gradually taking our foot off the brake." When asked about September rate cut expectations, Knot said: "I will have to wait until I have the full data and information set going into that meeting to decide my position on whether September is appropriate,” adding that "I would have to do so again in October, December and whenever," reported Reuters.
• The German and Eurozone flash HICP data for August will be published at 12:00 GMT later today and on Friday, respectively. German annual HICP is estimated to have grown at a slower pace of 2.3% from 2.6% in July. Month-over-month, the HICP is forecasted to have remained flat after rising 0.5% in July. 

Technical Analysis: EUR/USD dips below 1.1100

EUR/USD falls sharply below 1.1100 after failing to extend its upside above the crucial resistance of 1.1200. The near-term outlook of the major currency pair is still firm as all short-to-long-term Exponential Moving Averages (EMAs) are sloping higher. 

Earlier, the major currency pair strengthened after breaking above the Rising Channel formation on a daily timeframe. 

The 14-day Relative Strength Index (RSI) has declined below 60.00 after turning overbought near 75.00.

On the upside, the recent high of 1.1200 and the July 2023 high at 1.1275 will be the next stop for the Euro bulls. The downside is expected to remain cushioned near the psychological support of 1.1000.

The Euro (EUR) is expected to trade in a range between 1.1040 and 1.1200, UOB Group analysts Quek Ser Leang and Lee Sue Ann note.

Rangebound in the 1.1040/1.1200 range

24-HOUR VIEW: "Our expectation for EUR to edge above 1.1200 yesterday was incorrect, as it fell sharply, closing lower by 0.57% (1.1120), its biggest 1- day drop in 2-1/2 months. The sharp and swift drop seems to be overextended, but there is room for EUR to decline further to 1.1095 before stabilisation is likely. The major support at 1.1040 is unlikely to come under threat. Resistance is at 1.1145, followed by 1.1165.”

1-3 WEEKS VIEW: “After EUR soared last Friday, we indicated on Monday (26 Aug, spot at 1.1185) that ‘the boost in momentum has increased the likelihood of EUR reaching 1.1275.’ We indicated that we ‘will hold the same view provided that the ‘strong support’ at 1.1105 is not breached.’ Yesterday, EUR fell sharply, tumbling to a low of 1.1104. While our ‘strong support’ level was only slightly breached, upward momentum has largely dissipated. For now, we expect EUR to trade in a range between 1.1040 and 1.1200. Looking ahead, as long as it does not break clearly below 1.1040, there is still chance for EUR to rise above 1.1200 later on.”

• EUR/USD rebounds from key Fibo support at 1.1107 amid renewed US Dollar selling.
• Risk aversion and pre-German inflation and US GDP nervousness could limit the pair’s upswing.
• The daily technical setup continues to stay constructive for EUR/USD in the near term.

EUR/USD is back in the green zone early Thursday, reversing a part of Wednesday’s steep sell-off. The further upside, however, appears elusive if risk aversion gathers steam and revives the safe-haven demand for the US Dollar (USD).

Markets trade with caution following the American AI giant’s, Nvidia, disappointing sales forecast and amid increased nervousness heading toward the release of this week’s top-tier economic data.

Germany is set to publish its preliminary inflation data while the US calendar will feature the second estimate of the Gross Domestic Product (GDP) later Thursday.

From a short-term technical perspective, the EUR/USD uptrend remains intact so long as the 1.1107 support holds. That level is the 23.6% Fibonacci Retracement (Fibo) level of the August rally from 1.0775 to 1.1202, 13-year highs.

The 14-day Relative Strength Index (RSI) stays firm above 50, currently near 63, justifying the major’s bullish potential.

Acceptance above the 1.1150 psychological level is needed on a daily closing basis to retest the yearly top just above 1.1200. Ahead of that, Wednesday’s high of 1.1186 could challenge the bearish commitments.

On the flip side, a sustained break below the abovementioned 23.6% Fibo support at 1.1107 could open up the downside toward the 38.2% Fibo level of the same advance, aligned at 1.1045.

EUR/USD buyers will then find immediate support at the 21-day Simple Moving Average (SMA) of 1.1026. Additional declines could thwart the 1.1000 round level.

EUR/USD: Daily chart

• EUR/USD slipped back below 1.1150 as bidders struggle to maintain balance.
• A breakdown in bullish market sentiment is giving the Greenback room to breathe.
• EU and US inflation prints due at the end of the week to dominate investor attention.

EUR/USD trimmed recent gains on Wednesday, stepping lower after clipping fresh highs for the year as broad-market anticipation of Federal Reserve (Fed) rate cuts in September keeps broad-market risk appetite pinned to the ceiling.

There is little of note on the economic calendar for the middle range of the trading week, but Thursday will bring an update on US Gross Domestic Product (GDP) figures, which will be closely watched. However, little movement is expected as markets have broadly priced in Q2 annualized GDP growth to hold steady near 2.8%.

Friday’s data docket shows promise for markets slipping into a boredom trance, with a fresh print of pan-EU Harmonized Index of Consumer Prices (HICP) inflation due early in the European market session. Core EU HICP inflation is expected to continue trimming lower across the board, forecast to print at 2.8% YoY in August compared to the previous print of 2.9%.

US Personal Consumption Expenditure Price Index (PCE) inflation due on Friday remains the week’s key print, and investors are shuffling their feet while they wait for signs that inflation will continue to ease, or at least not rise, fast enough that the Federal Reserve (Fed) will be kept on rails to deliver a hotly-anticipated rate cut on September 18.

EUR/USD price forecast

EUR/USD slipped back below the 1.1150 level on Wednesday as bidders struggle to keep the Fiber moving north. The pair is still testing the waters well north of the 200-day Exponential Moving Average (EMA) at 1.0850, but a sustained slide will quickly see price action tumble back to the 50-day EMA near 1.0940.

EUR/USD daily chart

This time last year, the FX futures market was reducing EUR longs. More recently, EUR positioning is very small, Société Generale FX strategists note

Risk reversals to return towards flattish levels

“EUR/USD’s acceleration above 1.10 over the past couple of weeks has pushed up both realised and implied volatility.”

“As the FX skew usually predicts more volatility on the USD upside, the switch to positive of short-dated EUR/USD risk reversals is an inversion.”

“This move is consistent with the positive vol/spot correlation, but as the spot stabilises, we’d expect risk reversals to return towards flattish levels.”

The Euro (EUR) has lost 0.5% over the course of the session so far as EUR consolidation from earlier in the week develops into a little more softness, Scotiabank's Chief FX Strategist Shaun Osborne notes.

EUR slips despite some narrowing in short-term EZ/US spreads

“Absent any data or fundamental developments, short-term flows appear to be driving movement on the session. Note that EZ/US 2Y spreads have narrowed further today (-147bps, the narrowest since mid-2023) which suggests EUR losses may snap higher again after month -end flows run off.”

“EUR/USD drift has undercut short-term bull trend momentum and spot risks easing a bit more to test key short-term support at 1.1100/10. Price action suggests a minor peak may have been reached around 1.12 over the turn of the week. A push under 1.1100 may see losses extend to the mid-1.10s.”

• EUR/USD comes under pressure as the Euro weakens on firm ECB rate cuts prospects.
• The Eurozone’s weak economic outlook supports ECB rate cut bets for September.
• The US Dollar regains ground with US core PCE inflation data under the spotlight.

EUR/USD corrects to near 1.1150 in Wednesday’s European session. The major currency pair drops as the US Dollar (USD) regains ground after posting a fresh year-to-date (YTD) low this week. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, edges higher to near 100.80 from fresh lows of 100.50.

A mild recovery in the US Dollar appears to be a short-lived pullback move for now, which could be capitalized as a selling opportunity by market participants. The near-term outlook for the Greenback is vulnerable on sheer optimism that the Federal Reserve (Fed) will start reducing interest rates in September.

While Fed rate cuts in September have been fully priced in by traders, bets remain split over whether the central bank will cut interest rates gradually by 25 basis points (bps) or deliver a larger one of 50 bps. According to the CME FedWatch tool, 30-day Federal Funds Futures pricing data shows that the likelihood of a 50-bps interest rate reduction in September is 34.5%, while the rest favors a cut by 25 bps.

For fresh cues about the potential rate-cut size, investors await the United States (US) core Personal Consumption Expenditure Inflation (PCE) data for July, which will be published on Friday. The PCE Price Index report is expected to show that the annual core inflation rose by 2.7%, up from June’s reading of 2.6%, with monthly figures growing steadily by 0.2%. Signs of a further decline in the underlying inflation would prompt expectations for the Fed to adopt an aggressive policy-easing approach. On the contrary, sticky figures would dampen this jumbo rate-cut scenario.

Daily digest market movers: EUR/USD drops to near 1.1150 as Euro weakens

• EUR/USD slumps from fresh highs of 1.1200 as the Euro (EUR) weakens. The Euro underperforms its major peers as investors seem confident that the European Central Bank (ECB) will cut interest rates again in September. 
• The ECB started reducing interest rates in June as policymakers appear confident that price pressures in the Eurozone will return to the bank’s target of 2% in 2025. However, it decided to leave its key borrowing rates unchanged in July as officials were worried that an aggressive policy easing process could revamp inflationary pressures again. 
• With evidence from Eurozone flash HCOB PMI for August and Q2 Negotiated Wage Rates that the overall economic outlook is uncertain and wage pressures are easing, the ECB is widely anticipated to reduce interest rates by 25 bps in September. Traders also see the ECB cutting borrowing rates again somewhere in the last quarter of this year.
• For fresh cues on the interest rate cut path, investors await the flash Harmonized Index of Consumer Prices (HICP) data for August for Germany and the overall Eurozone, which will be published on Thursday and Friday, respectively. Economists expect that price pressures to have decelerated.

Technical Analysis: EUR/USD falls to near 1.1150

EUR/USD declines to near 1.1150 after posting a fresh swing high at 1.1200. The broader outlook of the major currency pair remains firm as it holds the breakout of the Symmetrical Triangle chart pattern formed on the weekly time frame. The upward-sloping 20-week Exponential Moving Average (EMA) near 1.0900 supports more upside ahead.

The 14-period Relative Strength Index (RSI) oscillates in the bullish range of 60.00-80.00, suggesting a strong upside momentum. On the upside, the July 2023 high at 1.1275 and the January 2022 high of 1.1500 will be the next stops for the Euro bulls. The downside is expected to remain cushioned near the psychological support of 1.1000.

Euro (EUR) could edge above 1.1200 but is unlikely to reach 1.1225. For the longer term, boost in momentum has increased the likelihood of EUR reaching 1.1275, UOB Group FX strategists Quek Ser Leang and note.

Bulls may test 1.1200 short term

24-HOUR VIEW: “Yesterday, we indicated that EUR ‘seems to have entered a consolidation phase and is likely to trade in a range of 1.1140/1.1190.’ Our view was not wrong, even though EUR traded in a narrower range of 1.1150/1.1190, closing on a firm note at 1.1184 (+0.21%). Upward momentum has increased, albeit not much. EUR could edge above 1.1200 today but the next resistance at 1.1225 is likely out of reach. On the downside, support levels are at 1.1165 and 1.1145.”

1-3 WEEKS VIEW: “After EUR soared last Friday, we indicated on Monday (26 Aug, spot at 1.1185) that ‘the boost in momentum has increased the likelihood of EUR reaching 1.1275.’ We will hold the same view provided that the ‘strong support’ at 1.1105 (no change in level) is not breached.”

• EUR/USD rose on Tuesday, but bulls remain unable to pierce 1.1200.
• Wednesday’s market session promises little momentum with a thin calendar.
• EU and US inflation data looms large on Friday, but little meaningful until then.

EUR/USD drifted into the high side on Tuesday, bolstered by a continued broad-market easing in Greenback bidding pressure. Fiber ticked back into the high end after the trading week kicked off with a slight pare back in recent gains, but a fresh round of risk-on market sentiment sent bids back into recent highs. Still, the pair remains trapped below the 1.1200 handle as Euro bulls struggle to confidently force Fiber higher.

Fed Chair Jerome Powell all but confirmed that the central bank will pivot into a rate-cutting cycle on September 18 during an appearance at the Jackson Hole Economic Symposium last Friday, sending market appetite into the ceiling once again.

Coming up on Wednesday: Markets set for a quiet day

Little of note is populating the economic calendar on the Euro side, and Wednesday is shaping up to be a quiet session on both sides of the Atlantic. Fedspeak traders will have an eye out for a speech from Fed Board of Governors member Christopher Waller early in the US market session, while central bank watchers will be on the lookout for any headlines from the EU’s Eurogroup meeting slated for the European market session.

What happened on Tuesday

Mixed prints in US housing price data from June gave investors little to go on. The Federal Housing Finance Agency’s MoM Housing Price Index contracted -0.1% compared to May’s print of 0.0%. Markets expected a print of 0.2%. The S&P/Case-Shiller Home Price Indices, meanwhile, rose 6.5% YoY, less than the previous period’s revised 6.9%, but still more than the expected 6.0%.

Coming up: EU, US inflation data drops

Pan-EU Harmonized Index of Consumer Prices inflation numbers for August are due early Friday, and price growth across the Euro area are expected to tick down to 2.8% YoY compared to the previous 2.9% as inflationary pressures continue to ease, though not nearly as fast as policymakers at the European Central Bank (ECB) would like.

US Q2 Gross Domestic Product (GDP) figures are slated to print on Thursday, and are expected to hold steady at 2.8% on an annualized basis. However, the key data print this week will be Friday’s US Personal Consumption Expenditure (PCE) Price Index inflation reading for July, which is expected to tick higher YoY to 2.7% from 2.6% and hold flat at 0.2% MoM. Market participants absolutely giddy over hopes for rate cuts will be looking for inflation data to come in below expectations, while an above-forecast print could send fresh jitters through investor risk appetite.

Forex Today: Lack of enthusiasm points to some consolidation

EUR/USD price forecast

EUR/USD is on pace for its best single-month performance since November of 2022, up over 3.1% just in the month of August. Despite this week’s early technical exhaustion pullback, Fiber has gained ground for four consecutive trading weeks, and is bidding well above the 200-day Exponential Moving Average (EMA) at 1.0832.

Despite a healthy bid deep into bull country, Fiber is running a deep exposure to a bearish pullback, and a lack of topside momentum could see price action tumble all the way back to the 50-day EMA at 1.0925.

EUR/USD daily chart

EUR/USD is steady as markets consolidate recent gains, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

EUR consolidates in upper 1.11s

“Final Q2 German GDP data was unchanged from the preliminary report (-0.1% Q/Q) as weak consumption and investment exert a drag on growth. The ECB’s Knot and Nagel speak today.”

“Minor EUR drift from the 1.12 peak may be no more than a pause (potential bull flag) in the EUR’s still strong uptrend. RSI oscillators are signaling that the EUR is somewhat overbought but the strength of the trend higher in spot in the past four weeks or so confers a good deal of protection against counter trend corrections for now.”

“Minor support is 1.1150. Stronger support intraday sits at 1.1105/10.”