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Euro reverses from two-day high, fade US soft CPI move

  • EUR/USD reverses from two-day high despite softer US CPI.
  • Fed hold odds jump as inflation extends disinflation trend.
  • Germany HICP holds steady while energy costs pressure inflation.

The Euro reversed course after reaching a two-day high of 1.1563, following the release of a benign US inflation report for July, which triggered a repricing for a less “hawkish” Federal Reserve, throughout 2026. Despite this, EUR/USD retreated from earlier gains, trading at 1.1522, down 0.17% at the time of writing.

EUR/USD reverses course despite benign US CPI as traders await PPI and Eurozone data

Inflation in the US prompted investors to cut their positions, expecting a rate hike at the September meeting. The odds swung dramatically, with the odds of a hold at 60%, up from 40% before the release of the Consumer Price Index (CPI).

The US CPI for July was in line with expectations, indicating ongoing disinflation. The overall CPI declined slightly from 3.5% to 3.4% YoY, while the core CPI decreased from 2.6% to 2.5% over the twelve months ending in July.

Across the pond, the Eurozone docket showed that Germany’s Harmonised Index of Consumer Prices (HICP) in July held steady at 2.8%, unchanged as expected. Despite this, economists warned that energy prices continued to rise at an above-average rate, remaining a crucial driver for inflation.

On Thursday, the Eurozone’s schedule will feature the release of inflation data from Spain, alongside an update on Industrial Production in the European Union. Projections for the production suggest that economists see an improvement in June from a -1.2% contraction on an annual basis, up to -0.8%

In the US, the Producer Price Index (PPI), along with the Consumer Price Index (CPI), could guide the Federal Reserve’s interest rate path.

EUR/USD Price Forecast: Technical outlook

Chart Analysis EUR/USD
EUR/USD daily chart

In the daily chart, EUR/USD trades at 1.1523, holding a mildly bullish bias as it grinds above the broken downtrend line at 1.1514 and the top of the descending parallel channel at 1.1510. The latest simple moving averages cluster around 1.1466 below price, suggesting underlying demand, while the Relative Strength Index (14) near 56 points to constructive but not overextended momentum after the recent recovery off the lower channel boundary at 1.1336.

On the downside, initial support emerges in the 1.1514–1.1510 area, where the reclaimed trend-line and channel top converge, followed by the moving average support zone around 1.1466 and then the channel floor at 1.1336 if sellers regain control. On the topside, the next notable resistance is the horizontal barrier at 1.1849, and only a sustained break above this level would significantly strengthen the bullish outlook for the pair.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Euro FAQs

The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Author

Christian Borjon Valencia

Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.

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