EUR/USD revisits seven-month high around 1.1000 ahead of US inflation

• EUR/USD exhibits sheer strength near 1.1000 as the US Dollar weakens as Fed rate-cut bets increase.
• The Euro gains on expectations that the ECB will cut interest rates more gradually.
• Investors await the US inflation data for fresh guidance on interest rates.

EUR/USD clings to gains around the psychological resistance of 1.1000 in Wednesday’s European session, its highest level in around seven months. The major currency pair strengthens as the near-term outlook of the US Dollar (USD) is subdued due to firm speculation 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, hovers near a weekly low at 102.55. 

Market expectations for Fed interest rate cuts in September strengthened further after the United States (US) Producer Price Index (PPI) report for July indicated that price pressures are on track to return to the desired rate of 2%. Headline and core PPI, which strips of volatile food and energy items, softened on a monthly as well as annual basis. This suggests that producers are losing pricing power due to deteriorating demand conditions.

On the interest rate guidance, Atlanta Fed Bank President Raphael Bostic said on Tuesday that recent has increased its confidence that inflation will return to 2% but he wants a little more evidence to endorse interest rate cuts. 

For more evidence, market participants will focus on the US Consumer Price Index (CPI) data for July, which will be published at 12:30 GMT. The CPI report is expected to show that monthly headline and core inflation rose by 0.2%. Annual headline and core CPI are estimated to have decelerated by one-tenth to 2.9% and 3.2%, respectively. 

A soft inflation reading would boost expectations for Fed interest rate cuts. Also, it can improve speculation that the Fed will reduce its key borrowing rates aggressively. On the contrary, hot inflation numbers would dampen the same.

Daily digest market movers: EUR/USD strengthens on firm Euro

• EUR/USD reclaims a seven-month high of slightly above 1.1000 in Wednesday’s European session. The major currency pair is upbeat due to the outperformance of the Euro (EUR) against its major peers. The Euro performs strongly on expectations that the European Central Bank (ECB) will cut its key borrowing rates further, although in a gradual manner.
• The ECB started its policy-easing cycle in June after officials gained confidence that price pressures will return to bank’s target of 2% in 2025. However, policymakers continued to refrain from committing a pre-defined interest-rate cut approach as they worry that an aggressive expansionary monetary policy stance could re-accelerate inflation again.
• A Reuters poll carried out between August 8-13 showed that over 80% of respondents expect the ECB to cut interest rates two more times this year, one in September and the other in December. 
• On the economic front, investors await the revised estimates of flash Q2 Gross Domestic Product (GDP) and Employment Change data for the Eurozone, which will be published at 09:00 GMT. The Eurozone economy is anticipated to have expanded by 0.3%, in line with flash figures and the growth rate recorded in the first quarter of this year. Meanwhile, the Employment Change, a percentage measure that shows an increase in fresh payrolls, is seen rising at a slower pace of 0.2% from the prior release of 0.3%.
• Usually, the impact of revised estimates remains light, but its influence could be high on the Euro due to the absence of top-tier economic data in case there are any big revisions.

Euro Price Today:

Technical Analysis: EUR/USD refreshes seven-month high slightly above 1.1000

EUR/USD posts a fresh seven-month high above 1.1000. The major currency pair strengthens after a breakout of the Channel formation on a daily time frame. The upward-sloping 20-day Exponential Moving Average (EMA) near 1.0900 suggests that the near-term outlook of the shared currency pair is bullish.

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

On the upside, the August 10, 2023, high at 1.1065 and the round-level resistance of 1.1100 will act as a major barricade for the Euro bulls.

Alternatively, a downside move below August 1 low at 1.0777 would drag the asset toward February low near 1.0700. A breakdown below the latter would expose it to the June 14 low at 1.0667.