- EUR/USD trades below 1.1100 as the Eurozone inflation declines in line with estimates.
- Soft German inflation already boosted hopes of another ECB interest-rate cut in September.
- Upwardly revised US Q2 GDP slightly reduces the chances that the Fed will opt for a bigger rate cut.
EUR/USD stays below 1.1100 in Friday’s European session as the Eurozone flash annual Harmonized Index of Consumer Prices (HICP) declines expectedly in August. A preliminary HICP report showed that the headline inflation decelerated to 2.2% from 2.6% in July due to lower energy prices. In the same period, the core HICP – which excludes volatile components like food, energy, alcohol, and tobacco – grew by 2.8%, slower than the former release of 2.9%.
The preliminary inflation data is expected to strengthen market speculation for the European Central Bank’s (ECB) September interest rate cuts and, more broadly, the policy-easing path for the remainder of the year.
Financial market participants already seem to be confident that the ECB will cut its key borrowing rates in September again. The ECB pivoted to policy-normalization in June but left interest rates unchanged in August. Market expectations for ECB September rate cuts increased sharply after data released on Thursday showed that price pressures in the Eurozone’s largest nation, Germany, returned to 2% for the first time in more than three years. Also, the economy is exposed to a technical recession as it contracted by 0.1% in the second quarter of this year and its economic outlook is vulnerable. Other Eurozone economies, such as France or Spain, have also seen a significant inflation decline in August.
“Fading inflationary pressure combined with fading growth momentum offers an almost perfect macro backdrop for another rate cut,” said Carsten Brzeski, global head of macro at ING, in a note on Thursday.
The ECB is also expected to deliver an additional interest rate cut somewhere in the last quarter of this year.
Euro PRICE Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.06% | -0.14% | 0.06% | -0.07% | -0.14% | -0.08% | 0.16% | |
| EUR | 0.06% | -0.07% | 0.10% | -0.01% | -0.08% | -0.04% | 0.22% | |
| GBP | 0.14% | 0.07% | 0.17% | 0.07% | -0.01% | 0.04% | 0.30% | |
| JPY | -0.06% | -0.10% | -0.17% | -0.10% | -0.16% | -0.13% | 0.13% | |
| CAD | 0.07% | 0.00% | -0.07% | 0.10% | -0.09% | -0.01% | 0.22% | |
| AUD | 0.14% | 0.08% | 0.00% | 0.16% | 0.09% | 0.05% | 0.28% | |
| NZD | 0.08% | 0.04% | -0.04% | 0.13% | 0.01% | -0.05% | 0.25% | |
| CHF | -0.16% | -0.22% | -0.30% | -0.13% | -0.22% | -0.28% | -0.25% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
Daily digest market movers: EUR/USD to be guided by US inflation data
- EUR/USD trades with caution as the US Dollar (USD) consolidates ahead of the United States (US) Personal Consumption Expenditure Price Index (PCE) for July, which will be published at 12:30 GMT. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades slightly below a fresh weekly high of 101.58.
- Investors await the US inflation data to get fresh cues about the likely monetary policy action by the Federal Reserve (Fed) in the September meeting. The PCE report is expected to show that year-over-year core inflation rose at a slightly faster pace of 2.7% from 2.6% in June, with monthly figures growing steadily by 0.2%.
- Currently, financial markets seem to be confident that the Fed will start reducing interest rates in September. However, traders remain split over the potential size by which the Fed will pivot to policy-normalization.
- According to the CME FedWatch tool, 30-day Federal Funds Futures pricing data shows that the likelihood of a probability of 50-basis points (bps) interest rate reduction in September is 33%, while the rest are favoring a cut by 25 bps.
- The likelihood of a bigger rate cut has fallen slightly after the US Bureau of Economic Analysis (BEA) reported that the pace at which the economy grew in the second quarter was higher than previously estimated. The agency reported that the economy grew at a robust pace of 3% on an annualized basis, against the preliminary estimates of 2.8%.
Technical Analysis: EUR/USD stays below 1.1100
EUR/USD trades inside Thursday’s trading range after steading below the crucial resistance of 1.1100. The near-term outlook of the major currency pair is still firm as all short-to-long-term Exponential Moving Averages (EMAs) are sloping higher. Also, the major currency pair holds the breakout of the Rising Channel formation on a daily timeframe.
The 14-day Relative Strength Index (RSI) has declined below 60.00 after turning overbought near 75.00.
On the upside, a recent high of 1.1200 and the July 2023 high at 1.1275 will be the next stop for the Euro bulls. The downside is expected to remain cushioned near the psychological support of 1.1000.
Economic Indicator
Core Harmonized Index of Consumer Prices (YoY)
The Core Harmonized Index of Consumer Prices (HICP) measures changes in the prices of a representative basket of goods and services in the European Monetary Union. The HICP, – released by Eurostat on a monthly basis, is harmonized because the same methodology is used across all member states and their contribution is weighted. The YoY reading compares prices in the reference month to a year earlier. Core HICP excludes volatile components like food, energy, alcohol, and tobacco. The Core HICP is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as bullish for the Euro (EUR), while a low reading is seen as bearish.
Last release: Fri Aug 30, 2024 09:00 (Prel)
Frequency: Monthly
Actual: 2.8%
Consensus: 2.8%
Previous: 2.9%
Source: Eurostat
