- EUR/USD attracts some follow-through buying amid a combination of supporting factors.
- Fed rate cut bets and concerns about the central bank’s independence weigh on the USD.
- Diminishing odds for further ECB rate cuts underpin the Euro and also support spot prices.
The EUR/USD pair builds on its recent goodish rebound from the 1.1575-1.1570 region, or a three-week trough touched last Wednesday, and gains some follow-through traction at the start of the new month. The US Dollar (USD) retests the August monthly swing low amid dovish Federal Reserve (Fed) expectations and turns out to be a key factor acting as a tailwind for the currency pair.
Traders are now pricing in a greater chance that the US Federal Reserve will lower borrowing costs by 25 basis points (bps) in September and deliver two rate cuts by the end of this year. The bets seem rather unaffected by the US Personal Consumption Expenditure (PCE) Price Index on Friday, which pointed to still stubborn inflationary pressures. The US Bureau of Economic Analysis reported that the headline PCE Price Index held steady at the 2.6% YoY rate in July. However, the core PCE Price Index, which excludes volatile food and energy prices, matched estimates and edged higher from June’s rise of 2.8% to 2.9% during the reported month.
Nevertheless, the USD selling bias remains unabated, with concerns about the Fed’s independence further contributing to the bearish sentiment. US President Trump moved to oust Fed Governor Lisa Cook amid alleged mortgage fraud. Cook refused to step down and filed a lawsuit. The development, however, raises concerns about the central bank’s autonomy as Cook’s departure would give Trump another appointment to the Fed’s seven-member board and command a majority for the first time in decades. This, in turn, keeps the USD bulls on the defensive and suggests that the path of least resistance for the EUR/USD pair is to the upside.
Meanwhile, the shared currency has been outperforming on the back of the higher-than-expected German inflation data for August, which undermined expectations that the European Central Bank (ECB) will lower interest rates in the near term. In fact, German Harmonized Index of Consumer Prices (HICP) grew at an annualized pace of 2.1% compared to 2% estimated and the prior reading of 1.8%. For more cues on inflation in the Eurozone, investors will focus on the preliminary Eurozone HICP data for August, due on Tuesday. This will influence the Euro and the EUR/USD pair ahead of the month-start key US macro releases.
This week’s busy US economic docket kicks off with the ISM Manufacturing PMI on Tuesday, followed by JOLTS Job Openings data on Wednesday and the ISM Services PMI on Thursday. The focus, however, will remain glued to the closely-watched US monthly employment details on Friday. The popularly known Nonfarm Payrolls (NFP) report would drive expectations about the Fed’s rate-cut path, which, in turn, will help in determining the next leg of a directional move for the Greenback and the EUR/USD pair.
EUR/USD daily chart
Technical Outlook
From a technical perspective, some follow-through buying beyond the 1.1740-1.1745 supply zone will be seen as a fresh trigger for bullish traders. Given that oscillators have been gaining positive traction and are still away from being in the overbought territory, the EUR/USD pair might then aim to reclaim the 1.1800 round figure. The momentum could extend further towards the year-to-date high, around the 1.1830 region touched in July, which, if cleared, would set the stage for a further near-term appreciating move.
On the flip side, any corrective slide below the 1.1700 round figure is likely to attract fresh buyers and find decent support near mid-1.1600s. Some follow-through selling might expose the 1.1600 mark before the EUR/USD pair slides to the 1.1575-1.1570 region, or a multi-week low, en route to the 1.1525 area. The latter represents the 100-day Simple Moving Average (SMA), which, if broken decisively, might shift the near-term bias in favor of bearish traders and pave the way for deeper losses.
