The EUR/USD pair advanced to approximately 1.1100 during Friday’s New York session, bolstered by a weakening US Dollar and the European Central Bank’s (ECB) recent policy actions. The US Dollar Index (DXY), which measures the Greenback’s value against a basket of six major currencies, slid further to near 101.00, pressured by expectations of a significant Federal Reserve (Fed) rate cut next week.
According to the CME FedWatch Tool, the likelihood of the Fed reducing interest rates by 50 basis points (bps) to a range of 4.75%-5.00% in September has surged to 43%, up from 14% before the US Producer Price Index (PPI) data release.
PPI Data and Fed Rate Cut Expectations
Thursday’s PPI report revealed a slower-than-anticipated increase in producer inflation for August. The headline inflation rose by 1.7%, below the forecasted 1.8% and down from July’s revised figure of 2.1%. Core PPI, excluding volatile food and energy prices, increased by 2.4%, missing the expected 2.5%. The slower pace of inflation suggests a sluggish consumer spending trend, which historically prompts increased bets on Fed rate cuts.
Michigan Consumer Sentiment Index
Preliminary data for the Michigan Consumer Sentiment Index showed an unexpected rise to 69.0 in September, surpassing the estimate of 68.0, indicating improved consumer outlook.
Daily Digest Market Movers
The EUR/USD pair’s rise reflects the Euro’s strength following the ECB’s monetary policy announcement. The ECB cut its Rate on Deposit Facility by 25 bps to 3.50%, aligning with market expectations. The ECB’s decision was influenced by a weaker Eurozone economic outlook and slowing price pressures.
ECB President Christine Lagarde emphasized a data-driven approach for future rate decisions, stating that the central bank will assess inflation trends and economic data before making further moves. Market participants anticipate one more rate cut from the ECB this year, with hopes pinned on easing price pressures.
In a late Asian session statement, ECB policymaker Joachim Nagel noted that core inflation is expected to improve with declining wage trends in the Eurozone.
Economic Data and Technical Analysis
Eurozone Industrial Production decreased by 2.2% year-over-year in July, a slight improvement from the anticipated -2.7% and June’s revised -4.1%. On a monthly basis, Industrial Production fell by 0.3%, as expected.
Technically, the EUR/USD pair has rebounded strongly from the psychological support level of 1.1000, breaking out of a Rising Channel chart pattern. The pair is now trading above the 20-day Exponential Moving Average (EMA) at around 1.1055. The 14-day Relative Strength Index (RSI) is in the 40.00-60.00 range, with bullish momentum likely if it surpasses 60.00.
Key resistance levels for the Euro bulls include last week’s high of 1.1155 and the psychological level of 1.1200. On the downside, major support zones are the psychological 1.1000 level and the July 17 high near 1.0950.
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