EUR/USD Price Analysis – Sep 01, 2023

Daily Price Outlook

The EUR/USD currency pair is currently showing a strong bearish trend, with its value hovering around the mid-1.0800s. This means that the Euro is losing value compared to the US Dollar. Howeve, there are a few reasons behind this downward movement. Firstly, there is a growing belief that the European Central Bank (ECB) will decide to keep interest rates unchanged in September. This expectation is not good news for the Euro because higher interest rates tend to make a currency more attractive to investors.

Secondly, there is uncertainty about what the Federal Reserve (Fed) in the United States will do with its interest rates in the future. This uncertainty is actually benefiting the US Dollar, as investors tend to favor currencies from countries with higher interest rates. Therefore, the Euro is weak right now because the ECB might not raise interest rates, while the US Dollar is gaining strength due to uncertainty about what the Fed will do next. This combination is pushing the EUR/USD pair lower.

Euro Faces ECB Caution and Slow Growth Amidst Dollar's Inflation Edge

It is worth noting that the Euro is currently under pressure due to cautious statements from the European Central Bank (ECB). Prominent ECB officials, including Isabel Schnabel and Luis de Guindos, have hinted at the possibility of keeping interest rates unchanged at the September policy meeting. This shift in sentiment comes as Euro Zone growth has fallen short of expectations, despite the ongoing discussion about the need for further rate hikes.

Adding to this, recent Euro Zone data reveals a slowdown in underlying price growth for August, which further strengthens expectations that the ECB will maintain its current interest rates. In contrast, the United States has seen higher inflation, with the Personal Consumption Expenditures (PCE) Price Index rising to 3.3% YoY in July. Consequently, the Euro is facing downward pressure against the US Dollar as investors lean towards the Dollar's potentially more attractive interest rates and economic outlook.

US Inflation Inches Up, but Economic Indicators Signal Caution

Furthermore, the Core PCE Price Index, which the Federal Reserve closely monitors for inflation, increased by 4.2% annually, slightly higher than the 4.1% in June. The report also highlighted a 0.2% growth in Personal Income and a substantial 0.8% rise in Personal Spending, the most significant jump since January. Hence, this data leaves room for the possibility of the Fed implementing another 25 basis points rate hike before the year's end, bolstering the US Dollar and putting downward pressure on the EUR/USD currency pair.

However, recent reports, such as the ADP employment figures and the second estimate of Q2 GDP, suggest a potential slowdown in the robust US economy. This wil likely prompt the Fed to adopt a less aggressive stance, curbing the strength of the US Dollar. Investors are also cautious, awaiting the influential NFP jobs report later today, which will likely provide significant direction to the overall market.

EUR/USD - Technical analysis

The EUR/USD pair decisively breached the 1.0880 threshold, closing below it yesterday, signaling a return to its prevailing bearish trajectory visible on the chart. In forthcoming sessions, the pair appears poised to further descend, potentially testing the 1.0785 marker. A break beneath this level could set the stage for a deeper decline, targeting 1.0700.

Today's outlook is predominantly bearish, further reinforced by the downward pressure exerted by the EMA50. However, it's pertinent to highlight that any move above 1.0880 could neutralize this bearish outlook, potentially paving the way for recovery efforts. The trading range for today is anticipated to span from a support at 1.0750 to a resistance at 1.0900.