Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.1850.
- Add a stop-loss at 1.1685.
- Timeline: 1-3 days.
Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.1685.
- Add a stop-loss at 1.1850.
The EUR/USD exchange rate continued its rebound as investors adopted a risk-on sentiment following this week’s US consumer inflation data and its impact on the Federal Reserve. It rose to a high of 1.1700, its highest point since July 28 and much higher than this month’s low of 1.1395.
Federal Reserve Interest Rate Cut Odds Rise
The EUR/USD pair soared after Scott Bessent, the Treasury Secretary, urged that the Federal Reserve to cut interest rates by 150 basis points, lower than the 300 bps that Donald Trump has called for.
The Trump administration believes that lower interest rates will supercharge the economy by incentivizing borrowing and home ownership. It also hopes that low rates will lower the amount of money that the US pays to its creditors.
Hopes of a Federal Reserve cut grew earlier this month when the US published weak non-farm payrolls data. The report showed that the economy created just 73k jobs as the unemployment rate rose.
These hopes then jumped after the US released the latest consumer inflation data. The report showed that the headline CPI remained unchanged at 2.7% in July, while the core CPI jumped to 3.1%.
These numbers mean that Trump’s tariffs are having a gradual impact on inflation. They also showed that goods inflation was not surging as some analysts were expecting.
Analysts now expect that the bank will cut interest rates by 0.25% in its September meeting. Some analysts see the bank cutting two more times while others expect one more.
The next key data from the United States will be the producer price index (PPI) and the initial and continuing jobless claims numbers.
There will also be the latest European GDP and jobs data. Economists expect the data to show that the economy expanded by 1.4% in Q2, down from 1.5% in Q1.
EUR/USD Technical Analysis
The EUR/USD has jumped as hopes for a Federal Reserve cut rose after the key macro data from the United States. It has remained above the 50-day and 25-day moving averages and formed an ascending channel.
The Awesome Oscillator has pointed upwards and is about to move above the zero line. Also, the two lines of the Relative Vigor Index (RVI) have made a bullish crossover.
Therefore, the pair will likely keep rising as bulls target the upper side of the channel at 1.1850. A move below the 50-day moving average will invalidate the bullish view.
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Crispus Nyaga is a financial analyst, coach, and trader with more than 8 years in the industry. He has worked for leading companies like ATFX, easyMarkets, and OctaFx. Further, he has published widely in platforms like SeekingAlpha, Investing Cube, Capital.com, and Invezz. In his free time, he likes watching golf and spending time with his wife and child.