EUR/USD gains further as US Dollar declines with US inflation in focus

• EUR/USD rose to a fresh one-month high near 1.0850 amid weakness in the US Dollar ahead of the US inflation data for June.
• The US Dollar declines as Fed’s Powell took away fears of inflation remaining persistent.
• The Euro capitalizes on easing fears of a widening French financial crisis and diminishing ECB rate cut prospects.

EUR/USD posts a fresh one-month high at around  1.0850 in Thursday’s European session. The major currency pair strengthens as the US Dollar (USD) is facing selling pressure due to firm expectations that the Federal Reserve (Fed) will start reducing interest rates in September. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, edges lower to near 104.90.

Market speculation for Fed rate cuts in September increased as comments from Fed Chair Jerome Powell, in the semi-annual Congressional testimony, indicated that the central bank has made quite a bit of progress in inflation and that labor market strength appears to have eased. Powell refrained from announcing a victory on inflation and said rate cuts would be appropriate when policymakers gain confidence that inflation will return to the desired rate of 2%.

For meaningful guidance on the interest rate outlook, investors await the US Consumer Price Index (CPI) data for June, which will be published at 12:30 GMT. The CPI report is expected to show that the core inflation, which strips off volatile food and energy items, grew steadily by 0.2% and 3.4% on monthly and annual basis, respectively. Annual headline inflation is estimated to have decelerated to 3.1% from May’s reading of 3.3%, while the monthly figure is expected to have barely grown after remaining unchanged in May.

A scenario in which price pressures remain sticky or hotter-than-expected would force trades to pare bets of rate cuts in September. On the contrary, soft numbers will be favorable for lowering borrowing costs. A decline in the US inflation would also increase confidence that the disinflation process has resumed and high price pressures recorded in the first quarter were mere a short-term blip.

Daily digest market movers: EUR/USD rises as prospects of ECB’s subsequent rate cuts wane

• EUR/USD moves higher to 1.0850 as concerns over the widening French financial crisis ease as Marine Le Pen’s far-right National Rally failed to maintain dominance over French President Emmanuel Macron's centrist alliance and the left-wing coalition, also known as New Popular Front, led by Jean-Luc Melenchon.
• Economists were worried about the far right coming to power, which was expected to steer fiscal expansion. Currently, the centrist alliance is expected to join hands with the left wing to form a coalition government.
• Apart from diminishing fears of French financial crisis, easing expectations of subsequent rate cuts by the European Central Bank (ECB) have also brought stability to the Euro’s appeal.
• Traders pare bets favoring ECB’s back-to-back rate cuts as ECB policymakers hesitate to commit to a specific rate-cut path. ECB officials worry that an aggressive approach could revamp price pressures again. However, they are comfortable with expectations of more rate cuts this year.
• Meanwhile, revised estimates for the German Harmonized Index of Consumer Prices (HICP) confirmed that price pressures decelerated in June. Annual HICP grew at a slower pace of 2.5% from May’s reading of 2.8%.

Technical Analysis: EUR/USD delivers Bullish Flag breakout

EUR/USD strengthens after delivering a breakout of the Bullish Flag formation in a 4-hour timeframe. A breakout of the above-mentioned chart pattern results in a continuation of the trend, which in this case is bullish.

The 20-period Exponential Moving Average (EMA) near 1.0825 continues to support the Euro bulls.

The 14-day Relative Strength Index (RSI) establishes into the bullish range of 60.00-80.00, indicating that momentum has leaned to the upside.

Going forward, the psychological figure of 1.0900 will be a key target for the Euro bulls. On the downside, the June 19 high at around 1.0750 will be a major support zone.