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EUR/USD Gains; On-Target US CPI Has Markets Betting Rates Will Stay Put

EUR/USD Gains; On-Target US CPI Has Markets Betting Rates Will Stay Put

David Cottle, Analyst


EUR/USD Price, Chart, and Analysis

  • EUR/USD topped 1.10 After Jul’s US Inflation Data
  • Core CPI’s Deceleration Trend Remains In Place even as headline inflation ticked up
  • Eurozone inflation expectations remain uncomfortably high
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The Euro popped above its last ten days’ trading range against the United States Dollar in Thursday’s European afternoon as important US inflation data came in broadly as expected, with markets reportedly daring to hope that interest rates might not have to rise again this year in the world’s largest economy.

July’s official Consumer Price Index rose by an annualized 3.2%. That was above June’s 3% rise. Food, housing, and automobile insurance costs were largely to blame for the increase. The core measure strips out the volatile effects of food and fuel. It rose by 4.7%. That was a tick below June’s outcome.

The rate has been gradually weakening since it peaked at 6.6% back in September 2022. Headline inflation meanwhile peaked at 9.1%.

A good session for market forecasters, then, but a rather less good one for Dollar bulls. EUR/USD popped above $1.10 on the news, as markets stick with the view that, while US borrowing costs may have further to rise, they’re not likely to go too much higher in this cycle given clear signs that inflation is coming to heel.

Indeed, the Wall Street Journal reported after the data that derivatives markets now predict that the current Fed Funds Target Rate of between 5.2%% and 5.5% is likely to stay put for the rest of this year.

Of course, this thesis will be highly data dependent and there’s one more CPI report and another official employment data release between now and the next meeting of Open Market Committee rate-setters on September 20.

The Euro has slipped against the greenback since it printed seventeen-month highs in mid-July, but it hasn’t fallen very far despite a rather gloomy outlook for the Eurozone economy. The European Central Bank released its monthly bulletin this week. It was a downbeat roundup that spoke of a deteriorating economic outlook and weaker domestic demand thanks to rising inflation and tight financing conditions.

Inflation expectations within the currency bloc remain uncomfortably high, despite the ECB itself hinting that it might be close to the end of its own tightening cycle after nine consecutive increases in borrowing costs.

Still, the Euro retains a degree of interest rate support which has seen EUR/USD climb steadily from its lows of last September.

The week hasn’t got a lot more to give in terms of tradable economic numbers. Friday’s Yuan-loan data out of China could move EUR/USD given the market focus on China’s stuttering recovery. The University of Michigan’s venerable consumer sentiment snapshot will round out the week.

EUR/USD Technical Analysis

EUR/USD Daily Chart Compiled Using TradingView

EUR/USD has been rangebound since July 26 between 1.0909 and 1.1041. Thursday’s trade has seen the pair probe above that but the break doesn’t at this point look conclusive. Euro bulls will need to retake July 6’s peak of 1.1103 to convince and, perhaps, push on to key resistance at 1.1275, but so far they haven’t had the conviction to do so.

Near-term support comes in at 1.0912 and 1.07329, with the latter below trendline support from last November which comes in at 1.07905.

Longer-term, the Euro remains well within the impressive uptrend established since last September’s lows and seems likely to retest its recent highs once the present consolidative phase plays out.

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EUR/USD Bullish
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -3% 3% -1%
Weekly -10% 16% -2%
What does it mean for price action?
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Sentiment toward the pair is bullish according to IG Group data, although not overly so, and the uncommitted may want to wait and see where the pair closes out the week relative to its current trading range before taking a directional view.

--By David Cottle for DailyFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.