EUR/USD continues to struggle below the key level of 1.1050 as investors show caution ahead of the upcoming US inflation data for August and the European Central Bank’s (ECB) policy announcement. The ECB is expected to cut its key borrowing rates by 25 basis points (bps), which will be the second cut in its current policy-easing cycle. Market speculation for the potential size of the Federal Reserve’s interest rate cut will be influenced by the US inflation data.
The US Consumer Price Index (CPI) data for August will be closely watched by investors as it will provide insights into the Fed’s potential policy-easing process before its upcoming monetary policy meeting. The recent US Nonfarm Payrolls (NFP) data for August did not clearly indicate the size of the expected interest rate cut, leading to increased importance of the inflation data. Market participants had previously anticipated a large interest rate cut by the Fed in September due to concerns about a potential recession, but the NFP report for July showed a healthier labor market situation.
Economists project that the annual headline CPI will grow at a slower pace of 2.6%, the lowest since March 2021, while the core inflation excluding volatile items is expected to rise steadily by 3.2%. Both monthly headline and core inflation are predicted to have increased by 0.2%. Additionally, the upcoming US Producer Price Index (PPI) data for August will be published on Thursday, adding to market volatility.
The Eurozone’s economic performance will be closely monitored along with the ECB’s policy decision. ECB President Christine Lagarde is expected to deliver a dovish interest rate guidance as inflation in Germany returned to the bank’s target of 2% in August and the country’s economic growth is vulnerable to weakened demand. Financial markets anticipate another interest rate cut by the ECB in the last quarter of the year, signaling a more accommodative monetary policy stance.
From a technical analysis perspective, EUR/USD is facing resistance below 1.1050 and continues to trade below the 20-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) suggests a lack of momentum and a sideways trend. The pair is expected to find support near the psychological level of 1.1000, while facing resistance at the levels of 1.1155 and 1.1200 on the upside.
Overall, the upcoming US inflation data, ECB policy decision, and technical analysis indicate that EUR/USD will continue to face resistance below 1.1050, with market participants closely monitoring economic indicators and central bank actions for further cues on the direction of the currency pair. Investors remain cautious amidst uncertainties surrounding the global economic outlook and monetary policy decisions by major central banks.
