EUR/USD gains on steady Eurozone Q2 GDP growth, Fed policy in focus

• EUR/USD rises to near 1.0830 on upbeat Eurozone preliminary Q2 GDP report.
• The ECB may cut interest rates two more times this year.
• The Fed is expected to openly endorse rate cuts in September.

EUR/USD edges higher to near 1.0830 in Tuesday’s European session. The major currency pair rises on better-than-expected Eurozone flash Q2 Gross Domestic Product (GDP). The report showed that the old continent expanded steadily by 0.3%. Investors expected the economy to have grown at a slower pace of 0.2%. Annualized GDP rose by 0.6%, in line with expectations and faster than the former release of 0.4%. This has improved the Eurozone's economic outlook and the Euro's appeal.

On the contrary, preliminary German Q2 GDP unexpectedly contracted by 0.1%, while economists forecasted an expansion at a similar pace. In the previous quarter, the Eurozone's largest economy grew by 0.2%. Annualized GDP contracted by 0.1% though it was expected to remain unchanged. The German administration is already worried about the poor demand environment. Therefore, German Finance Minister Christian Lindner announced tax relief for corporate and households to spurt spending and investment.

Meanwhile, more fireworks are anticipated in today's session, as the preliminary German Harmonized Index of Consumer Prices (HICP) for July is scheduled for release at 12:00 GMT.

This week, the major trigger for the Euro will be the preliminary Eurozone HICP for July, which will be published on Wednesday. The inflation data will indicate whether current market speculation that the European Central Bank (ECB) will cut its key borrowing rates two more times this year is appropriate. The ECB initiated its policy-easing cycle in June but didn’t cut interest rates sequentially in July as policymakers worry that an aggressive expansionary stance could lift price pressures again. Annually, headline and core HICP, which excludes volatile items like food, energy, alcohol, and tobacco, are estimated to have decelerated to 2.4% and 2.8%, respectively.

Daily digest market movers: EUR/USD gains as US Dollar gives up intraday gains

• EUR/USD moves higher in Tuesday’s European session as the US Dollar (USD) surrenders its intraday gains amid uncertainty ahead of the Federal Reserve’s (Fed) monetary policy announcement on Wednesday. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades flat near 104.60.
• The Fed is expected to leave interest rates unchanged in the range of 5.25%-5.50% for the eighth consecutive meeting. It is anticipated to be the last steady interest rate decision, and the Fed will pivot to policy normalization starting from the September meeting.
• According to the CME FedWatch tool, 30-day Federal Fund futures pricing data shows that the central bank will reduce interest rates by 25 basis points (bps) from their current levels in the September meeting. The data also shows that there will be two more rate cuts before year end instead of one as projected by Fed’s policymakers in the latest Fed dot plot.
• Market experts see the Fed acknowledging the return of inflation on the path towards the bank’s target of 2% and some progress, too, along with upside risks to labor market strength. This would indicate the Fed’s readiness to unwind the more than two-year-long policy-tightening framework.
• This week, investors will also focus on a slew of economic data. In Tuesday’s session, investors will focus on JOLTS Job Openings data for June, which will be published at 14:00 GMT. The number of job vacancies posted by employers is estimated to have declined to 8.03 million from the former release of 8.14 million.

Technical Analysis: EUR/USD holds gains above 1.0800

EUR/USD trades inside Monday’s trading range and holds key support of 1.0800. The shared currency pair remains inside a Symmetrical Triangle pattern on a daily timeframe after failing to hold the breakout. The major currency pair settles below the 20-day Exponential Moving Average (EMA), which trades around 1.0840. 

The major could slide further towards round-level supports near 1.0800 and 1.0700. On the upside, the round-level resistance of 1.0900 will be a key barrier for the Euro bulls.

The 14-day Relative Strength Index (RSI) returns within the 40.00-60.00 range, suggesting the bullish momentum has faded.