EUR/USD hits a two-month high as weak U.S. retail sales and fading Fed hike bets pressure the dollar, with 1.1600 and 1.1630 in focus.
The euro extended its advance against the U.S. dollar for a third consecutive session, pushing EUR/USD to a two-month high during Asian trading. The pair has built on last week’s rebound from around the 1.1500 psychological level as a weaker U.S. dollar and fading expectations for an immediate Federal Reserve rate hike strengthen the bullish case.
The dollar remains under pressure after disappointing U.S. economic data reduced expectations for tighter monetary policy. July retail sales fell 0.6%, the largest monthly decline since May of last year, signaling weaker consumer momentum. Moderating price pressures have also given the Federal Reserve greater flexibility to keep interest rates unchanged while policymakers assess the economy.
Fed Outlook Keeps Dollar Under Pressure
The U.S. Dollar Index has remained near the lower end of its monthly range, reflecting growing concerns about the Fed’s policy outlook and U.S. fiscal conditions. Scotiabank strategists noted that the U.S. 2-year/30-year yield spread has steepened to 108 basis points, a move that can add pressure to the dollar when investors question the future direction of monetary policy.
Markets are now closely watching the FOMC Minutes, scheduled for Wednesday, for additional clues about the Fed’s next steps. Any indication that officials remain cautious on further tightening could reinforce dollar weakness and provide another catalyst for EUR/USD.
Key market drivers include:
- U.S. July retail sales declined 0.6%.
- The 2/30-year Treasury yield spread reached 108 bps.
- EUR/USD is approaching the 1.1600 psychological barrier.
ECB Expectations Support the Euro
The euro is also finding support from expectations that the European Central Bank could deliver another 25-basis-point rate increase in September as inflation remains above its 2% target. That policy divergence could improve the euro’s relative appeal if the Fed maintains a more cautious stance.
Still, geopolitical tensions involving the U.S. and Iran and uncertainty surrounding oil prices could limit the dollar’s downside. Higher energy prices can revive inflation concerns, potentially complicating expectations for both central banks.
The fundamental backdrop currently favors further EUR/USD gains, although traders may remain cautious near major technical resistance.
EUR/USD Faces 1.1630 Resistance
EUR/USD is holding above the 50% Fibonacci retracement of the April-June decline at 1.1584. However, the pair remains below the 200-day SMA at 1.1630, followed closely by the 61.8% Fibonacci level at 1.1645.
A decisive daily close above the 1.1630-1.1645 resistance zone could expose the 1.1732 level, with further upside potential toward 1.1843. Conversely, a break below 1.1584 would weaken the bullish setup and shift attention toward 1.1522, followed by 1.1447 and 1.1324.
For now, EUR/USD remains biased higher, with 1.1600 acting as the next psychological test and the FOMC Minutes likely to determine whether the euro can extend its breakout.
Sources & Methodology
Primary-source standard: Market-moving facts should link to original data releases, regulator notices, company filings or official project announcements whenever available. Secondary reporting is used for additional context, not as a substitute for original evidence.
Page last reviewed: