Key Takeaways:
- US Inflation and Fed Expectations: Weaker US inflation data has reduced the likelihood of aggressive Fed rate hikes, supporting the EUR/USD pair.
- Technical Levels: Resistance at 1.0910-1.0915 and support at 1.0870-1.0865 will be crucial in determining the pair’s direction.
- ECB and PPI Data: The ECB’s monetary policy statement and the US PPI data will be key drivers. A dovish ECB stance could bolster the Euro, while PPI data will influence the US Dollar.
Market Dynamics and Recent Performance
The EUR/USD pair has been attempting to gain momentum, closing last week slightly above the 1.0900 level. This performance was bolstered by a combination of factors, including weaker US inflation data which reduced the likelihood of aggressive Federal Reserve rate hikes. The Consumer Price Index (CPI) declined by 0.1% month-over-month, and the core CPI increased only 0.1%, both figures falling below market expectations. This soft inflation data caused the US Dollar to come under heavy selling pressure, helping the Euro gain traction.
Technical and Fundamental Influences
Technically, the EUR/USD pair is currently showing bullish potential despite a modest pullback from a one-month peak around the 1.0910 area. The pair’s recent breakout through the 1.0800 confluence hurdle, comprising the 50-day, 100-day, and 200-day Simple Moving Averages (SMAs), has reinforced the positive outlook. The RSI indicator on the 4-hour chart remains above 70, suggesting that the pair is technically overbought but retains bullish momentum.
From a fundamental perspective, the dovish expectations surrounding the Federal Reserve are capping the US Dollar’s gains. The market is currently pricing in a high probability of the Fed leaving the policy rate unchanged in September, which supports the EUR/USD pair. In contrast, the European Central Bank (ECB) is expected to maintain its hawkish stance, further boosting the Euro.
Looking Forward
Looking ahead, the focus will be on the ECB monetary policy statement and the US Producer Price Index (PPI) data. The ECB’s stance on interest rates and inflation will be crucial, especially given the recent economic indicators suggesting a mixed outlook for the Eurozone. The US PPI data, forecasted to rise by 0.1%, will also be significant. A negative reading could further pressure the US Dollar, while a stronger-than-expected increase might help the Dollar remain resilient.
Key technical levels to watch include the 1.0910-1.0915 resistance area. A sustained move above this level could lift the EUR/USD pair towards the 1.0960-1.0965 region and potentially reclaim the 1.1000 psychological mark. On the downside, any dips are likely to find support around the 1.0870-1.0865 area, with additional support near the 1.0800 confluence zone. A break below this support could drag the pair towards the 1.0755-1.0750 horizontal zone and possibly the June swing low around the 1.0665 region.
