EUR/USD Price Analysis – July 12, 2024
Daily Price Outlook
The EUR/USD currency pair maintained its upward trend and gained further ground around the 1.0890 level, reaching an intraday high of 1.0892. The rally can be attributed to a weaker US dollar, which lost ground following softer-than-expected US consumer inflation figures released previously.
This has raised expectations that the Federal Reserve might cut interest rates in September, putting pressure on the US dollar and contributing to gains in the EUR/USD pair.
Additionally, diminished expectations for ECB rate cuts, influenced by stable price pressures throughout the year and a cautious stance from policymakers, have also supported the EUR/USD pair.
Impact of US Inflation Data and Fed Rate Cut Expectations on the EUR/USD Pair
On the US front, the broad-based US dollar weakened today due to softer-than-expected US consumer inflation figures released earlier. This has heightened expectations that the Federal Reserve might cut interest rates in September.
According to the CME FedWatch tool, there is now certainty about a rate cut in September, with potential for another cut in either November or December.
The latest US Consumer Price Index (CPI) data for June, released Thursday, showed a resumption of disinflation after a brief pause in the first quarter of the year, prompting these expectations for Fed action.
On the data front, annual core inflation, which Fed officials closely monitor (excluding volatile food and energy prices), unexpectedly slowed to 3.3%, below economists' expectations of 3.4%.
Headline inflation also dipped to 3.0%, its lowest in a year, driven by lower energy costs and rental prices. Monthly headline inflation declined by 0.1% after holding steady in May.
These cooling inflationary pressures, alongside softer labor market conditions, have boosted Fed confidence in reaching their 2% inflation target. San Francisco Fed President Mary Daly welcomed the slowdown, supporting the case for lower interest rates, though the timing of rate cuts remains debated.
Therefore, the weakening US dollar following softer inflation data and expected Fed rate cuts may strengthen the EUR/USD pair. Lower interest rate expectations in the US compared to stable or potentially higher rates in the Eurozone could support the euro against the dollar.
Impact on EUR/USD Pair Amid Reduced ECB Rate Cut Expectations
On the EUR front, the expectations for the European Central Bank (ECB) to lower interest rates have cooled. This shift comes as ECB officials believe that inflation pressures will stay steady throughout the year.
They're cautious about slashing rates too quickly, fearing it could spark higher inflation once more. Instead of committing to a fixed plan for rate cuts, they're taking a wait-and-see approach. This means they're monitoring economic conditions closely before deciding on any aggressive moves to stimulate the economy through lower interest rates.
Therefore, the reduced expectations for ECB rate cuts typically strengthen the euro (EUR), potentially boosting the EUR/USD pair as investors perceive less economic stimulus and stable inflation in the Eurozone.
EUR/USD - Technical Analysis
The EUR/USD pair is holding steady, hovering just below the pivot point of $1.0887. Despite a marginal dip of 0.01%, the pair remains within striking distance of this key level, suggesting the potential for a breakout in either direction.
The 50-day Exponential Moving Average (EMA) stands at $1.0834, providing a solid foundation of support should the pair experience a pullback.
The Relative Strength Index (RSI) currently reads 64, indicating that the pair is neither overbought nor oversold. This neutral reading suggests that the pair could consolidate around current levels before making a decisive move.
Traders should closely monitor the price action around the pivot point, as a break above this level could signal further upside momentum, potentially targeting the $1.0900 resistance level.
However, a failure to breach the pivot point could see the pair retreat towards the immediate support at $1.0843. A decisive break below this level could trigger further downside pressure, potentially pushing the pair towards the $1.0823 support level.
Given the current consolidation, traders should exercise caution and wait for a clear breakout before initiating new positions.
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