EUR/USD Price Analysis – Aug 12, 2024
Daily Price Outlook
During the European trading session, the EUR/USD currency pair maintained its upward trend and remained well-bid around 1.0924, reaching an intra-day high of 1.0930.
This rally is largely due to a weaker US dollar, which lost ground amid rising expectations that the Federal Reserve (Fed) will cut interest rates at its next meeting.
Meanwhile, upbeat Eurozone economic growth of 0.3% also supports the EUR currency.
However, the Employment Change, a percentage measure indicating the increase in fresh payrolls, is expected to rise at a slower pace of 0.2% compared to the prior release of 0.3%, which may temper some of the positive sentiment.
Investors are waiting for key US inflation data before making significant moves on silver. This week’s reports include the Producer Price Index (PPI) on Tuesday, the Consumer Price Index (CPI) on Wednesday, and Retail Sales on Thursday.
In the Eurozone, revised Q2 GDP and preliminary Employment Change data will also be released on Wednesday.
These reports will influence Federal Reserve policy expectations, impacting the US dollar and, consequently, EUR/USD pair.
Impact of Eurozone Economic Growth and ECB Policy on EUR/USD
On the EUR front, the Eurozone's economy grew by 0.3% this quarter, matching earlier estimates and the previous quarter's growth. However, Employment Change is expected to slow to 0.2% from 0.3%, suggesting a more modest rise in new jobs.
Despite this, strong GDP figures are positive for the Euro (EUR) as they reduce the probability of further interest rate cuts by the European Central Bank (ECB).
Meanwhile, the ECB has shifted towards normalizing its policies, and investors are keen to see how much further the central bank will lower borrowing rates. Financial markets anticipate two more rate cuts this year.
Recently, Finnish ECB policymaker Olli Rehn highlighted that rate cuts could boost the Eurozone's economy, especially by supporting industrial growth and investment.
Consequently, the positive GDP growth and the expectation of fewer ECB rate cuts are likely to support the shared currency, strengthening the EUR/USD pair.
However, the slower Employment Change might limit gains, causing cautious trading around the EUR/USD.
Impact of Anticipated Fed Rate Cuts and CPI Data on EUR/USD
On the US front, traders are increasingly anticipating a Federal Reserve (Fed) rate cut at the next meeting, which could be beneficial for the EUR/USD pair.
However, the lower interest rates typically weaken the US dollar, making the EUR/USD pair more appealing.
According to the CME FedWatch Tool, there is a near-even chance of a rate cut, with a 49.5% probability of a 0.25% reduction and a 50.5% chance of a 0.50% cut in September.
On the data front, the Consumer Price Index (CPI) for July, due for release on Wednesday, is expected to show a 0.2% increase for both headline and core inflation, following a 0.1% decline in June.
The Producer Price Index (PPI), set for release on Tuesday, is forecast to rise by 0.1% in July, compared to a 0.2% gain in June.
If CPI exceeds expectations, it could impact the Federal Reserve's plans for rate cuts, potentially strengthening the USD and applying downward pressure on the EUR/USD pair.
Therefore, the Fed rate cuts could weaken the USD, making the EUR/USD pair more attractive. However, if CPI data exceeds expectations, it may lead to a stronger US dollar, exerting downward pressure on the EUR/USD pair.
EUR/USD - Technical Analysis
The EUR/USD is currently trading at $1.09204, showing a slight decline of 0.01% as the market remains cautious.
On the 4-hour chart, the pair is moving just below the pivot point at $1.0956, reflecting a neutral to bearish sentiment in the near term.
Immediate resistance is located at $1.0955, with further resistance levels at $1.1010 and $1.1043. These levels could act as targets if the euro gains momentum.
On the downside, immediate support is seen at $1.0867, with subsequent support at $1.0828 and $1.0777, which could be tested if the selling pressure increases.
The 50-day Exponential Moving Average (EMA) is positioned at $1.0891, slightly below the current price, indicating that the pair might find support around this level.
The Relative Strength Index (RSI) is currently at 53, suggesting a neutral stance, with neither overbought nor oversold conditions prevailing.
This RSI reading leaves room for potential upward movement, especially if the euro can maintain its position above the 50 EMA.
Given the current technical setup, a buy limit order at $1.08935 could be a strategic entry point, aiming for a take-profit target at $1.09557. To manage downside risk, a stop-loss should be placed at $1.08653.
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