EUR/USD Recovers to 1.1050 as Markets Await US CPI Data and ECB Rate Decision

After three days of losses, EUR/USD has regained ground, trading around 1.1050 during the Asian session on Wednesday. The US Dollar’s pullback, due to falling US Treasury yields, provided the euro with some breathing room ahead of the US Consumer Price Index (CPI) report.

Scheduled for release later in the North American session, this inflation data is expected to offer important clues on whether the Federal Reserve will cut interest rates in September.

At present, the US Dollar Index (DXY), which measures the dollar against a basket of six major currencies, has halted its three-day winning streak, trading near 101.40. Treasury bond yields are also down, with the 2-year yield at 3.57% and the 10-year yield at 3.62%, both reflecting market anticipation of a potential rate cut by the Federal Reserve.

Although the labor market report last week cast doubt on the likelihood of an aggressive cut, the CME FedWatch Tool shows a strong consensus for at least a 25 basis points (bps) reduction. However, the probability of a 50 bps cut has dropped from 38.0% to 31.0%.

Euro Supported by Mixed Economic Data and ECB Rate Speculation

The euro has been under pressure recently due to German inflation data. The Harmonized Index of Consumer Prices (HICP) increased by 2.0% year-on-year in August, in line with expectations. Similarly, the Consumer Price Index (CPI) stayed at 1.9% year-on-year, which did little to inspire bullish sentiment for the euro.

Nonetheless, attention is now turning to the European Central Bank’s (ECB) policy meeting on Thursday. Traders are largely expecting the ECB to implement a 25 bps rate cut, which would bring the deposit rate down to 4.0%.

This anticipation has kept the EUR/USD pair relatively stable as investors await further clarity on the ECB’s monetary policy trajectory.

EUR/USD Technical Outlook: Key Levels to Watch

Currently trading at $1.10476, the EUR/USD is up 0.26%, reflecting renewed optimism in the market. However, the pair faces key resistance and support levels that traders should keep a close eye on.

• Immediate resistance is at $1.1085, with higher targets at $1.1121 and $1.1154. Should bullish momentum persist, breaking these levels could lead to a further rally.
• On the downside, support lies at $1.1018, followed by $1.0994 and $1.0969. A break below these support levels may signal a deeper retracement.

From a technical perspective, the indicators show a mixed outlook:

• The Relative Strength Index (RSI) is at 46, which indicates a slightly bearish bias but with room for a potential upward move.
• The 50-day Exponential Moving Average (EMA) at $1.1063 presents a critical resistance point. A successful breach of this level could confirm a more sustained bullish trend. However, failure to break above may limit any gains in the near term.

For traders looking to enter the market:

• A buying opportunity exists above $1.10185 with a take-profit target at $1.10757.
• Stop-loss orders should be placed around $1.09832 to protect against downside risk, particularly if the pair revisits lower support levels.

Conclusion

The EUR/USD pair has shown resilience after halting its losing streak, benefiting from US Dollar weakness and declining Treasury yields. However, much depends on the upcoming US CPI data and the ECB’s rate decision, both of which are likely to have significant implications for the pair’s next move. Traders should remain cautious and watch key technical levels closely as these events unfold.