In the European session on Tuesday, EUR/USD maintains its position above the critical support level of 1.0800, buoyed by persistent weakness in the US Dollar (USD) amid growing expectations of Federal Reserve (Fed) interest rate cuts starting in September.
Traders, according to the CME FedWatch tool, now price in a 77% probability of lower interest rates in the upcoming September meeting, up from 65.6% a week ago. This shift follows recent indications of softening in the US labor market, with the Unemployment Rate reaching its highest point in over two years and Average Hourly Earnings showing expected moderation in June.
Attention turns to Fed Chair Jerome Powell’s semi-annual Congressional testimony scheduled for 14:00 GMT, where markets anticipate reaffirmation of the Fed’s stance on maintaining rates until sustained relief from inflationary pressures is observed.
At the recent European Central Bank (ECB) Forum of Central Banking, Powell acknowledged progress on inflation but noted the resumption of disinflationary trends in recent data.
Investors await Thursday’s US Consumer Price Index (CPI) report for further insights. Expectations are for steady growth in core CPI, excluding volatile food and energy prices, while headline figures are anticipated to show deceleration.
The EUR/USD pair has stabilized above its 20-day and 50-day Exponential Moving Averages (EMAs) around 1.0750 and 1.0770, respectively, indicative of strengthened bullish sentiment. Notably, the pair has also breached the 200-day EMA situated at 1.0800.
Technical analysis reveals a Symmetrical Triangle formation on the daily chart, signaling a period of low volatility and cautious market sentiment ahead of Powell’s testimony. The 14-day Relative Strength Index (RSI) stands at 60.00, suggesting potential for bullish momentum should it breach this level.
In summary, EUR/USD continues to hold steady above 1.0800 amidst USD weakness driven by Fed rate cut expectations, pending Powell’s congressional testimony and key CPI data later this week.
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