Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.1700.
- Add a stop-loss at 1.1500.
- Timeline: 1-2 days.
Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.1500.
- Add a stop-loss at 1.1700.
The EUR/USD exchange rate pulled back slightly as investors waited for the July consumer price index (CPI) data. It was trading at 1.1613 on Tuesday, down from the year-to-date high of 1.1825.
US Consumer Inflation Jumps
The EUR/USD exchange rate remained in a tight range as the market reacted to news that Donald Trump had extended his truce with China for 90 days as the two countries negotiate. This extension helped to ease the tensions that have been going on in the past few months.
The next key catalyst for the pair will be the upcoming US Consumer Price Index (CPI) data, which will help the Federal Reserve when making its interest rate decision in September.
Economists expect the numbers to show that the headline CPI rose from 2.7% in June to 2.8% in July, continuing a trend that started a few months ago when it bottomed at 2.3%.
Core inflation, which excludes the volatile food and energy prices, moved from 2.9% to 3.0%. That is a sign that Trump’s policies are having an impact on inflation, as it moved further away from the Fed’s target of 2.0%.
Most economists expect the Federal Reserve to cut interest rates by 0.25% in the next meeting. The CME FedWatch tool shows that the odds of a cut in September rose to 86%, while the Polymarket odds have soared to almost 90%.
The EUR/USD pair also reacted to a survey that showed that the ECB will delay its interest rate cut until December, much later than the previous estimate of October. Analysts also expect the deposit rate to remain at 1.75% for ten months.
The ECB is concerned that the bloc’s economy will continue weakening after the recent deal between the US and the European Union.
EUR/USD Technical Analysis
The EUR/USD exchange rate was in a tight range on Tuesday as traders wait for the upcoming US inflation data. It was trading at 1.1605, a range it has been in the past few days.
The weekly chart shows that the pair has moved above the important resistance point at 1.1277, the highest point in July 2023. It has remained above the 50-week moving average.
The pair has formed a bullish flag pattern, which comprises of a vertical line and a triangle. Therefore, the pair will likely keep rising as bulls target the key resistance at 1.1825 in the coming weeks.
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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.