Daily Technical Analysis EUR/USD: Rises Above 1.0850, With All Eyes on the Data

The EUR/USD is up slightly, trading around the 1.0860 level in early Asian trading hours on Monday. The pair rose as market traders widely anticipate the US Federal Reserve will cut interest rates in September, causing the dollar (USD) to move sharply lower.

US inflation, generally measured by the change in the personal consumption expenditures (PCE) price index, barely fell in June compared to a year ago, easing the way for an interest rate cut by the Federal Reserve in September. PCE inflation continued its slowdown in June, falling from 2.6% year-on-year in May to 2.5% in June. On a monthly basis, the PCE figure rose by about 0.1% in June after being unchanged in May. The core PCE price index, the measure of inflation preferred by the Fed, rose to about 2.6% year-on-year in June, up from 2.5% in May, according to Commerce Department figures released on Friday.

However, the lower June inflation in the US is not sufficient for the Fed to start cutting interest rates at its expected August meeting on Wednesday this week. Similarly, analysts noted significant progress on inflation, which will most likely allow the Fed to move closer to interest rate cuts. They still expect three rate cuts this year, starting at the September FOMC meeting. Financial markets have estimated a 90% likelihood of a September cut, followed by another cut in November and December, according to the CME’s FedWatch tool.

Conversely, traders expect more rate cuts from the European Central Bank (ECB) in the near term. This could similarly weigh on the euro (EUR) versus the dollar (USD). Last week, the ECB left interest rates unchanged, although weaker German IFO survey results and other softer data are paving the way for another rate cut. Traders will be closely watching preliminary second-quarter Gross Domestic Product (GDP) data for Germany and the eurozone. If the data is better than expected, the euro could gain ground against the dollar.

EUR/USD Daily Technical Analysis for July 28:

According to the attached daily chart, the trend remains strongly bearish, targeting the important psychological support level of 1.0800. If this level breaks, it will give the bears more momentum to move sharply lower. Technically, the next important support levels are 1.0745 and 1.0660, respectively. Conversely, there will not be a significant change towards an uptrend without moving towards the psychological resistance of 1.1000 again.