EUR/USD Price Analysis – Aug 14, 2024
Daily Price Outlook
During Wednesday's European trading session, the EUR/USD currency pair reclaimed a seven-month high, trading around 1.1023 level.
This upward momentum was driven by the Euro's strong performance against its major peers, as market participants anticipate further interest rate cuts from the European Central Bank (ECB).
The pair's strength was also supported by the subdued outlook for the US Dollar (USD) amid growing speculation of Federal Reserve rate cuts later this year.
EUR/USD Reaches Seven-Month High on ECB Rate Cut Expectations and Steady Eurozone Growth
The shared currency gained traction during European session, with the EUR/USD pair reaching its highest level in seven months. This surge was fueled by expectations that the ECB will continue its gradual policy-easing cycle, following its first rate cut in June.
Market sentiment has been bolstered by a Reuters poll, which showed that over 80% of respondents expect the ECB to cut rates two more times this year, once in September and again in December.
Meanwhile, the ECB's cautious approach to interest rate cuts stems from concerns about re-accelerating inflation, despite confidence that price pressures will return to the bank’s 2% target by 2025.
The central bank has refrained from committing to a predefined interest-rate cut trajectory, as aggressive expansionary policies could potentially reignite inflation.
On the economic front, Eurostat's revised estimates for Q2 Gross Domestic Product (GDP) confirmed that the Eurozone economy expanded by 0.3%, in line with initial flash estimates and the growth rate recorded in the first quarter.
This steady economic performance further supports the Euro’s recent strength, contributing to the positive sentiment surrounding the EUR/USD pair.
As the ECB navigates its cautious rate-cutting path, the EUR/USD pair may experience volatility, especially as investors digest upcoming economic data and further ECB commentary.
Impact of Federal Reserve Rate Cut Expectations and US CPI Data on EUR/USD
On the US front, the EUR/USD pair continues to benefit from the weakening US Dollar, driven by speculation that the Federal Reserve will start reducing interest rates as early as September.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, is hovering near a weekly low at 102.55, reflecting the market's anticipation of Fed rate cuts.
The US Producer Price Index (PPI) report for July, which showed softening price pressures, has reinforced expectations that the Fed might need to ease its monetary policy sooner rather than later.
The headline and core PPI both declined on a monthly and annual basis, suggesting that producers are losing pricing power amid weakening demand conditions.
Traders are now focusing on the upcoming US Consumer Price Index (CPI) data for July, scheduled for release at 12:30 GMT.
The CPI report is expected to show a 0.2% increase in both headline and core inflation on a monthly basis, with annual headline and core CPI projected to have decelerated to 2.9% and 3.2%, respectively.
However, the softer-than-expected CPI reading could further boost expectations for Fed rate cuts, potentially weakening the US Dollar and supporting the EUR/USD pair.
Conversely, if inflation numbers come in hotter than expected, it could dampen speculation of aggressive Fed rate cuts, which might exert downward pressure on the EUR/USD pair. Market participants will closely monitor the CPI data, as it will significantly influence the near-term direction of the EUR/USD pair.
EUR/USD- Technical Analysis
EUR/USD is trading at $1.10062, up slightly by 0.02%, as it hovers near its pivot point at $1.1010.
The pair has shown resilience, holding above key support levels, but it's facing strong resistance ahead. The daily chart indicates that the euro is testing crucial levels that could determine its next move.
Immediate support is found at $1.0963, with further support at $1.0946 and $1.0883. These levels are critical; if the euro slips below $1.0963, it could trigger a more significant decline.
On the upside, resistance is at $1.1043, followed by $1.1073 and $1.1105. A break above the pivot point at $1.1010 could signal a continuation of the recent bullish trend, potentially driving the price toward these higher targets.
The RSI is currently at 74, indicating that the pair is overbought and may be due for a pullback.
However, the 50-day Exponential Moving Average (EMA) at $1.0928 is trending upward, suggesting that the broader trend remains bullish.
This alignment of indicators supports a cautious approach, favoring buying opportunities above key levels while being mindful of the potential for a short-term correction.
For those looking to trade this pair, an entry above $1.09805 with a take profit target at $1.10356 could be strategic.
A stop-loss at $1.09461 would help protect against downside risk. The overall outlook suggests that while EUR/USD has the potential to climb higher, traders should be prepared for volatility as the pair tests these key levels.
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