EUR/USD reached a five-week high due to a decline in the US Dollar across the market. Despite an unexpected increase in US Producer Price Index (PPI) inflation in June, investors are optimistic about potential rate cuts. The European Central Bank (ECB) is expected to announce a rate cut next week, while US Retail Sales data is scheduled for release on Tuesday.
Market expectations for faster rate cuts by the US Federal Reserve (Fed) intensified, even with the rise in US PPI inflation. The Euro (EUR) continued to strengthen for the third consecutive week, reflecting investors’ growing risk appetite.
The recent increase in core PPI for wholesale inflation in the US exceeded expectations, leading to speculation of a rate cut due to the earlier decline in Consumer Price Index (CPI) inflation. The CME’s FedWatch tool suggests a high probability of a quarter-point rate cut at the FOMC meeting in September, with traders anticipating multiple cuts by 2024.
In other economic news, the University of Michigan’s Consumer Sentiment Index dropped to a seven-month low, indicating consumer concerns about the economy. Long-term inflation expectations remain above the Fed’s target rate of 2.0%.
Looking ahead, US Retail Sales data will be closely watched, while Euro traders await the ECB’s rate decision next Thursday. Despite a previous rate cut in June, the likelihood of a follow-up cut is low, with markets expecting a cautious approach from the ECB.
EUR/USD technical analysis shows a bullish trend, with the pair nearing resistance levels. However, a potential pullback to the 200-day Exponential Moving Average is possible. The hourly and daily charts indicate a positive outlook for the Euro against the US Dollar.
Overall, market sentiment is influenced by expectations of central bank actions and economic data releases, shaping the direction of the EUR/USD currency pair.