- EUR/USD rose markedly to the vicinity of 1.0980 on Tuesday.
- The Dollar accelerated its losses following Producer Prices data.
- Economic Sentiment in Germany and the euro bloc worsened in August.
EUR/USD extended Monday’s advance and flirted with the 1.0980 zone on turnaround Tuesday, picking up momentum on the back of the intense sell-off in the US Dollar (USD).
Meanwhile, extra losses saw the Greenback retreat to multi-day lows in the sub-103.00 area when tracked by the US Dollar Index (DXY), reflecting an improved sentiment in the risk complex, which was particularly exacerbated after a soft print from US Producer Prices in July, all ahead of the publication of the key US fundamentals later in the week.
Specifically, the upcoming US inflation data, as measured by the Consumer Price Index (CPI) on Wednesday and Retail Sales figures on Thursday, are expected to provide the markets with insight into the Federal Reserve’s intentions regarding potential interest rate cuts in September, including the possible extent of such cuts. Additionally, these reports could offer further clarity on the state of the US economy and whether recent concerns about a recession are well-founded.
On a regional level, Economic Sentiment in both Germany and the broader Eurozone declined further in August, reflecting a slowdown in German economic activity and key sectors within the euro area.
While the European Central Bank (ECB) has remained silent, Fed policymakers are expected to express their views as the September meeting approaches. Over the weekend, FOMC Governor Michelle Bowman, typically known for her hawkish stance, adopted a more moderate tone, acknowledging "welcome" improvements in inflation in recent months. However, she also noted that inflation remains "uncomfortably above" the central bank's 2% target and is still susceptible to upward pressure.
Regarding a potential rate cut by the Fed in September, market expectations for a 50 bps reduction have increased to around 55% from Monday’s 48%, according to the CME Group’s FedWatch Tool. It is noteworthy that just last week, the probability of such a scenario was around 70%.
Furthermore, if the Fed opts for more substantial rate cuts, the policy gap between the Fed and the ECB could narrow in the medium-to-long term as market participants expect two more interest rate reductions by the ECB this year, all of which could potentially support a rebound in EUR/USD.
However, in the longer term, the US economy is expected to outperform its European counterpart, suggesting that any weakness in the US Dollar may be temporary.
EUR/USD daily chart
EUR/USD short-term technical outlook
Further north, EUR/USD is likely to test the August high of 1.1008 (August 5) before reaching its December 2023 top of 1.1139 (December 28).
On the downside, the pair's next objective is the 200-day SMA at 1.0835, followed by the weekly low of 1.0777 (August 1) and the June low of 1.0666 (June 26), all of which are prior to the May bottom of 1.0649 (May 1).
Looking at the big picture, the pair's upward trend should continue if it trades over the crucial 200-day SMA.
So far, the four-hour chart shows a decent pick-up of the upside bias. The initial resistance level is 1.1008, which comes ahead of 1.1132. On the other hand, immediate conflict is at 1.0881, prior to the 200-SMA of 1.0855 and 1.0777. The relative strength index (RSI) improved to nearly 70.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.